ff  G-  1  3  3 

B  8 


THE  NATURAL  LAW  OF 

MONEY 


THE  SUCCESSIVE  STEPS  IN  THE  GROWTH  OF  MONEY  TRACED 
FROM  THE  DAYS  OF  BARTER  TO  THE  INTRODUCTION  OF 
THE  MODERN  CLEARING-HOUSE,  AND  MONETARY 
PRINCIPLES  EXAMINED  IN  THEIR  RELATION 
TO  PAST  AND  PRESENT  LEGISLATION 


BY 

WILLIAM  BROUGH 


Individuality  is  left  out  of  their  scheme  of  government. 
The  State  is  all  in  all. — Burke. 


G.  P.  PUTNAM’S  SONS 

NEW  YORK  LONDON 

27  WEST  TWENTY-THIRD  STREET  24  BEDFORD  STREET,  STRAND 

She  |ittitherbotkit  |lress 

1^95 

BOSTON  €K)LLEGE  LIBKAikE. 
CHESTNUT  HILL,  MASS, 


Copyright,  1894 

BY 

WILLIAM  BROUGH 

Entered  at  Stationers’  Hall,  London 
by  G.  P.  Putnam’s  Sons 


Ube  Tknlcfeerbocker  press,  flew  IRocbelle,  1R.  JJ 


CONTENTS. 


CHAPTER  I. 

PAGE 

The  Beginning  of  Money . 1-19 

What  is  meant  by  the  “  natural  law  of  money  ” — The  need 
of  a  medium  of  exchange — Barter  the  first  method  of  ex¬ 
change — Profit  a  stimulus  to  trade — Money  as  a  measure  of 
values — Various  forms  of  money — Qualities  requisite  to  an 
efficient  money — On  the  coinage  of  metals — “  King’s  money  ” 

— Monetary  struggles  between  kings  and  their  subjects. 

CHAPTER  II. 

Bi-metallism  and  Mono-metallism  .  .  .  20-57 

Silver  and  gold  as  an  equivalent  tender — The  Gresham  law 
— Mutilation  of  the  coinage  in  England — Why  cheap  money 
expels  money  of  higher  value  from  the  circulation — Influ¬ 
ence  of  Jew  money-changers  in  raising  the  monetary  stand¬ 
ard — Clipping  and  sweating — Severe  punishment  of  these 
offences — Value  of  the  guinea — Mono-metallism  succeeds 
bi-metallism — The  mandatory  theory  of  money — The  law  of 
natural  displacement — A  government’s  legitimate  service  in 
regard  to  money — Monetary  principles  applied  to  bi-metal¬ 
lism — Effects  of  the  demonetization  of  silver  in  1873 — The 
Latin  Union — Effect  of  legislative  interference  with  money 
— The  per-capita  plan — The  Bland  Act — The  Sherman  Act 
— Present  difference  in  value  between  a  gold  and  a  silver 
dollar — Effects  of  a  change  to  the  silver  standard — No 
levelling  of  fortunes,  but  an  increased  disparity. 

iii 


IV 


Contents 


CHAPTER  III. 

Paper-Money  and  Banking  ....  58- 

Comparison  of  silver  and  gold  as  a  medium  of  exchange — 
Intelligence  and  integrity  the  foundation  of  credit — The 
beginning  of  interest — The  development  of  the  banker — His 
receipt  the  beginning  of  paper-money — Essential  qualifica¬ 
tions  of  paper-money — The  banker’s  functions — The  clear¬ 
ing-house — Delegated  powers — The  defects  of  government 
paper-money — Personal  supervision  necessary  to  paper- 
money — Lent  money  and  spent  money — The  legal-tender 
obstruction. 

CHAPTER  IV. 

Paper-Money  in  Colonial  Times  .  .  .  80- 

Colonial  paper-money  not  redeemable  in  coin  on  demand — 
Issue  of  bills  of  credit — Abortive  efforts  of  the  Crown  to 
regulate  the  value  of  money — Failure  of  colonial  paper- 
money  due  to  its  defective  character — Grounds  of  opposition 
to  colonial  paper-money — Value  and  not  volume  the  test  of 
the  money  standard — The  Bank  of  North  America — Govern¬ 
ment  paper-money  displaced  by  bank-notes — The  Bank  of 
England  America’s  model  in  banking — Increase  of  State 
banks — Conflicting  views  held  by  Hamilton  and  Jefferson. 

CHAPTER  V. 

Monetary  System  of  Canada  as  Contrasted 

WITH  THAT  OF  THE  UNITED  STATES  .  99-I 

Canada’s  banking  capital  and  methods — Defects  of  her 
monetary  system  due  to  legislative  action — Differing  stand¬ 
points  of  her  bankers  and  her  politicians — Her  ratio  of 
metallic-money  to  paper-money — General  uniformity  of 
Canada’s  interest-rate — Her  banking  methods  in  relation  to 
her  agricultural  industries — Why  our  western  farmers  borrow 
money  from  Canadian  banks — British  capital  not  necessarily 
a  factor  in  Canada’s  business  transactions  with  England. 


Contents 


v 


CHAPTER  VI. 

PAGE 

Money,  Capital,  and  Interest  .  .  .  116-129 

The  differing  functions  of  money  and  capital — An  illustra¬ 
tion  of  this  difference — The  supply  of  capital  affects  the  rate 
of  interest — The  normal  and  the  abnormal  interest-rate — 

An  illustration  of  the  relation  between  the  volume  of  capital 
and  the  volume  of  money — Effect  of  the  introduction  of 
foreign  capital — Mistaken  legislation  in  reference  to  silver — 
How  to  keep  two  metals  in  circulation  at  a  parity — The 
Greenback  Act  of  1862 — Greenbacks  as  a  legal-tender. 

CHAPTER  VII. 

Mandatory  Money  and  Free  Money.  .  130-15 1 

What  the  framers  of  the  Constitution  thought  of  paper- 
money — Thomas  Paine’s  opinion  of  tender-laws — Useless¬ 
ness  of  a  legal-tender  law — Free-metallism — Bi-metallism 
impossible — Impossibility  of  legislating  a  new  money-metal 
into  general  use — Indispensable  qualifications  of  a  money- 
metal — Conditions  that  would  result  from  a  change  of 
standard — The  silver  party  and  the  silver  question. 

CHAPTER  VIII. 

The  Hoarding  Panic  of  July,  1893  .  .  152-163 

Two  distinct  panics — The  first  panic  the  result  of  the  with¬ 
drawal  of  capital  from  the  country — The  second  panic 
caused  by  the  hoarding  of  paper-money — Means  of  expand¬ 
ing  the  volume  of  paper  currency — The  tax  upon  paper- 
money — Rate  of  shrinkage  in  volume  of  current  money 
during  the  hoarding  panic — Effect  of  the  repeal  of  the 
silver  purchase  clause  of  the  Sherman  Act — Private  efforts 
to  supply  a  medium  of  exchange — Revival  of  industry  with¬ 
out  Congressional  aid — The  chief  instrumentality  of  relief — 
Improvised  money — Clearing-house  certificates — Imperative 
necessity  for  free  money. 


jfc  ' 


THE  NATURAL  LAW  OF  MONEY 


CHAPTER  I. 

THE  BEGINNING  OF  MONEY. 

IT  may  be  well  to  explain  at  the  outset  what  is 
meant  to  be  conveyed  by  the  phrase  “  the  natural 
law  of  money.”  While  it  is  true  that  money  is  a 
product  of  man’s  labor,  and  that  it  derives  all  its 
usefulness  from  the  actions  of  men,  it  was  not 
planned  and  brought  into  existence  with  an  intelli¬ 
gent  prevision  of  its  nature  and  workings.  It  would 
be  more  correct  to  say  that  it  came  into  use  because 
it  possessed  inherent  properties  which  fitted  it  for 
certain  services,  and  that  men  appropriated  it  when 
they  felt  the  need  of  the  services.  This  they  did  in¬ 
dividually,  without  any  concert  of  action,  for  money 
was  circulating  everywhere  in  the  world  before  men 
even  thought  of  making  laws  for  its  regulation. 


i 


2 


The  Natural  Law  of  Money 


When  an  individual  uses  money,  he  is  governed  in 
what  he  does  with  it  purely  by  his  own  interests,  and 
he  does  not  concern  himself  about  what  becomes  of 
it  after  it  passes  out  of  his  possession ;  thus  it  circu¬ 
lates  indefinitely,  impelled  always  by  the  motives 
and  interests  of  individuals  acting  independently  of 
each  other ;  yet  it  is  found  to  move  and  perform  its 
functions  with  the  regularity  of  a  natural  law. 

The  material  of  which  money  is  composed  may  be 
almost  any  product  of  man’s  labor;  it  becomes 
money  only  when  it  is  used  as  the  common  medium 
of  exchange.  Before  the  appearance  of  money  in 
the  world,  exchanges  of  commodities  were  made  in  a 
very  crude  way.  If  a  man  had  a  dog  that  he  wanted 
to  exchange  for  a  sheep,  he  could  not  make  the 
exchange  until  he  found  some  one  who  had  a  sheep 
and  wanted  a  dog.  But  in  the  course  of  time 
man  discovered  that,  among  the  commodities 
produced  by  him,  there  was  always  some  one  com¬ 
modity  in  more  general  use  and  demand  than  others, 
and  this  he  seized  upon  as  his  medium  of  exchange, 
— it  became  his  money.  Having  done  this,  he  was 
no  longer  obliged  to  wait  until  he  found  some  one 
who  had  the  particular  commodity  he  wanted,  and 
who  also  wanted  his  commodity  ;  he  stood  ready  to 
accept  the  commodity  in  general  demand,  because 


The  Beginning  of  Money 


3 


he  could  more  readily  exchange  it  for  the  commodity 
he  wanted,  and  so,  by  a  double  turn,  could  save  time 
and  better  accomplish  his  purpose. 

This  first  way  of  making  exchanges  has  been 
named  barter,  and  the  second,  trade. 

Here  we  see  how  money  first  came  into  use  in  the 
world.  A  great  variety  of  articles  has  been  appro¬ 
priated  for  use  as  money  at  one  time  or  another. 
We  cannot  mark  the  dates  in  history  when  these 
various  commodities  came  to  be  used,  as  it  was  not 
the  age,  but  the  stage  of  development  of  the  par¬ 
ticular  country,  that  created  the  need  for  them.  We 
may  find  in  the  world  to-day  among  primitive  com¬ 
munities  the  crudest  kinds  of  money  that  have  ever 
been  used.  Step  by  step,  and  keeping  even  pace 
with  increasing  knowledge,  have  man’s  wants  multi¬ 
plied,  and  his  implements  for  supplying  those  wants 
improved.  He  did  not  need  money  while  he  was 
hunting  with  his  dog  in  the  primeval  forest,  and  liv¬ 
ing  upon  edibles  already  in  existence ;  nor  did  he 
need  it  when  he  began  to  herd  animals  and  to  till 
the  soil.  Living  in  tribal  isolation,  and  having  no 
other  bond  of  sympathy  with  his  fellow-man  than 
kinship,  it  was  not  until  he  was  impelled  by  his 
necessities  to  exchange  commodities  with  other 
tribes  that  he  began  to  use  money. 


4 


The  Natural  Law  of  Money 


We  can  hardly  overestimate  the  importance  of 
money  as  a  civilizing  agent  in  the  world ;  there  can 
be  no  trade  or  commerce  without  it ;  man  must 
have  it,  or  go  back  to  barbarism.  By  employing 
one  of  his  commodities  as  a  medium  of  ex¬ 
change,  he  made  a  big  stride  forward  ;  a  new  era 
was  begun.  His  small  beginnings  were  the  seeds  of 
the  industrial  progress  we  see  around  us.  .Impelled 


by  want,  producer  meets  producer,  each  having  what 
the  other  needs  for  his  own  use  or  for  the  use  of  the 
tribal  family  ;  an  ^vrlmno-f*  fahes  plarer- 
barter ;  and  this  form  of  traffic  goes  on  increasingly 


until  the  need  is  felt  for  a  medium  of  exchange ; 

i.  mi  „ 1 1 ii ■  mm . . . .ip  — >i  '  .  ' . . . 

when  that  medium  is  found,  man  has  become  a 


trader.  He  has  discovered  that  there  is  profit  in 
these  exchanges,  and  he  no  longer  confines  his  trad- 
ing  to  his  immediate  wants,  but  trades  for  profit  . as 
well.  Every  want  that  he  satisfies  stimulates  into 


being  other  wants,  and  so  his  trading  goes  on  in¬ 
creasing  and  extending.  He  has  found  in  profit  a 
new  incentive  to  industry,  a  spur  to  continued  exer¬ 
tion.  But  to  succeed  in  his  new  occupation  he  must 
live  in  peace ;  his  strength  must  not  be  wasted  in 
the  petty,  but  deadly,  warfare  he  has  hitherto 
carried  on  with  neighboring  tribes ;  he  endeavors 
therefore  to  keep  on  good  terms  with  them.  He 


The  Beginning  of  Money 


5 


has  already  begun  to  add  other  ties  to  the  bond  of 
blood-relationship, — ties  of  self-interest,  which  grow 
gradually  into  friendship,  into  the  merging  of  tribe 
with  tribe,  into  a  large  political  community,  and 
finally  into  a  nation. 

We  see  from  what  has  been  said  that  man  had  no 
preconception  of  money :  he  felt  the  want  of  some¬ 
thing,  and  the  thing  was  ready  to  his  hand, — a 
product  of  his  own  creating,  but  made  for  other 
uses.  He  appropriated  it  to  supply  the  want,  and 
so  long  as  it  was  employed  in  that  capacity,  he  called 
it  “  money.” 

In  this  brief  outlining  of  the  way  in  which  money 
came  into  use,  some  things  are  to  be  especially  noted 
and  kept  in  mind.  We  have  seen  that  money  is  a 

product  of  man’s  labor, — a  commodity,  and  that  it  is 

^  _ , _ , — .  ’  _  -** 

not  any  one  specific  thing,  but  may  be  almost  any- 

J  "  . . . .  -.-.v-  J 


ting,  and  is  money  only  by  reason  of  its  fitjiess  at 
the  time  for  the  service  to  be.  performed.  In  any 
given  community  there  is  a  limit  to  the  number  of 
articles  produced,  and  in  earlier  times  this  limit  was 
very  much  narrower  than  now  ;  but  however  limited 
the  number  of  commodities  may  be,  there  are  always 
one  or  two  that  supply  the  money-want  more  effi¬ 
ciently  than  others.  Now,  as  almost  any  commodity 
may  be  used  as  money,  such  a  thing  as  a  lack  of  it 


6 


The  Natural  Law  of  Money 


is  not  possible  so  long  as  man  continues  to  be  a  pro¬ 
ducer  of  commodities,  although  he  may  by  false 
legislation  corrupt  his  money  or  throw  restrictions 
around  it,  and  thus  lessen  its  efficiency ;  all  over  the 
world  there  have  been  examples  of  such  false  legisla¬ 
tion  whenever  governments  conceived  it  to  be  their 
function  to  regulate  the  value  of  money. 

Money  fluctuates  in  value  in  sympathy  with  sup¬ 
ply  and  demand,  as  all  other  commodities  do.  As 
all  values  are  relative,  the  only  way  to  decide  whether 
money  has  risen  or  fallen  is  to  compare  it  with  other 
commodities,  and  if  the  comparison  coyerg^everal 
y earsTHieTes^^  m .  If  it 

is  found  that  nearly  all  the  staple  commodities  can  be 
bought  with  less  money  than  formerly,  we  may  be 
sure  that  money  has  risen  in  value ;  if  more  is  re¬ 
quired,  then  it  has  fallen. 

After  adopting  a  commodity  into  use  as  money, 
man  begins  to  lose  sight  of  its  fluctuations  in  value ; 
these  fluctuations  appear  to  him  to  be  altogether  in 
the  commodities  that  he  buys  •  he  looks  upon 
money  as  stationary,  and  regards  it  as  a  fixed  stan¬ 
dard  by  which  he  can  measure  the  value  of  other 
commodities.  Money  is  a  definite  measure,  but  not 

a  fixed  measure,  like  a  yard-stick.  There  ca?i  be  no 

■—  . . . ,J»— . . 

fixed' measure  for  vectues.  As  all  values  are  relative. 


The  Beginning  of  Money 


7 


it  is  only  by  comparing  the  price  of  one  commodity 
with  that  of  another  that  we  get  any  idea  of  value ; 
hence,  to  regard  money  as  a  fixed,  and  not  as  a 
fluctuating  measure,  produces  the  same  kind  of  mis¬ 
conception  that  one  would  have  of  the  solar  system 
who  regarded  the  earth  as  stationary.  Until  such 
delusions  are  dispelled,  the  one  individual  can  no 
more  understand  the  law  of  money  than  the  other 
can  realize  the  fact  of  the  earth’s  orbit. 

Since  there  can  be  no  fixed  measure  for  values, 
obviously  it  becomes  of  essential  importance  that  the 
commodity  selected  for  use  as  money  should  fluctu¬ 
ate  as  little  as  possible.  The  colonists  of  Virginia 
used  tobacco  as  money  until  after  the  Revolution ; 
there  was  always  a  ready  sale  for  it,  there  fore  people 
took.lt  freely  in  exchange  ipr  other  commodities  ;  it 
was  easily  exchangeable  for  money ;  or  co^iQiOiilties“'' 
in  foreign  as  well  as  in  the  home  markets.  Wam¬ 
pum  was  used  as  money  by  the  colonists  of  Massa¬ 
chusetts,  not  only  in  trading  with  the  Indians,  but 
for  a  short  time  among  themselves,  though  only  for 
limited  amounts ;  it  was  the  money  of  the  Indians, 
and  had  no  value  to  the  colonist  except  as  he 
might  use  it  in  trading  with  them,  so  it  soon  went 
out  of  use.  As  tobacco  had  intrinsic  value  and  was 
readily  exchangeable,  it  continued  for  a  long  time  to 


8 


The  Natural  Law  of  Money 


be  used  as  a  medium  of  exchange ;  but  as  it  was 
cumbersome  and  unsteady  in  price,  it  too  went  out 
of  use.  The  commodity  employed  as  money  does 
not  go  out  of  use  until  it  is  superseded  by  one  of 
superior  qualifications  for  the  service.  This  is  the 
natural  law  that  governs  the  change  from  one  kind 
of  money  to  another. 

The  fact  that  the  Virginia  colonist  used  tobacco 
as  money  was  no  indication  of  the  stage  of  civiliza¬ 
tion  he  had  reached  ;  he  merely  used  it  to  bridge 
over  a  period  of  scarcity  of  his  own  money, — which 
was  silver,  though  gold  was  also  in  use  in  Virginia. 
His  experience  proves  that  if  in  our  own  case  all  our 
gold  and  silver  were  driven  from  the  country,  we 
should  not  be  without  money,  though  our  new 
money  would  not  have  the  efficiency  of  the  old  ;  we 
should  have  taken  a  step  backward ;  while  we 
would  doubtless  show  great  ingenuity  in  selecting 
new  commodities  for  use  as  money,  we  should  be  in 
the  position  of  a  nation  that  had  thrown  away  its  im¬ 
proved  tools  and  implements  to  take  up  those  al¬ 
ready  cast  aside.  We  might  then  accept  the  proposi¬ 
tion  of  the  Farmers’  Alliance,  and  issue  certificates 
against  cattle,  wheat,  and  corn,  to  be  used  as  money. 
With  the  introduction  of  this  money  would  come  a 
new  occupation,  but  an  occupation  without  produc- 


The  Beginning  of  Money 


9 


tiveness.  Some  of  us  would  be  detailed  to  go  out 
and  watch  our  new  moneyTEosee"  tKaFThe  grain  was 
ruTh  and  tharpfeuro^pneumonia 

had  noL^ot-iuumi^  nt 

might  adopt  excellent  devices  for  the  protection 
of  this  new  money,  but  it  could  not  prevent  the  sense 
of  insecurity  which  pertains  to  a  money  of  defective 
character.  Should  we  adopt  the  Farmers’  Alliance 
plan,  it  would  not  be  the  first  time  that  cattle  had 
done  service  as  money.  History  records  that  this 
was  the  first  form  of  money  used  in  the  world. 

Wherever  the  metals  came  into  use  as  money, 
they  soon  supplanted  all  perishable  and  clumsy 
commodities,  being  particularly  adapted  to  such  use, 
in  which  nearly  all  of  them  have  done  service  at  one 
time  or  another.  They  have  great  durability,  being 
almost  indestructible ;  they  can  be  divided  into  con¬ 
venient-sized  pieces  for  handling  and  for  the  pocket, 
and  can  be  run  back  into  bars,  if  desired,  without 
loss  of  value.  The  final  test  of  coined  money  is  that 
it  shall  be  worth  as  much  when  run  into  bars  as 
when  it  is  in  coin.  If  it  will  stand  that  test,  it  is 
world-money, — and  all  coined  money  should  stand 
it.  Coin  in  constant  circulation  loses  value  by  abra¬ 
sion,  but  this  does  not  alter  the  rule ;  the  loss  from 
wear  must  be  made  good  in  return  for  the  service 


IO 


The  Natural  Law  of  Money 


rendered,  or  the  coin  will  become  discredited  money. 
There  is  but  one  exception  to  the  otherwise  in¬ 
flexible  rule  that  coin  shall  possess  full  intrinsic 
value,  and  that  is  as  to  the  small  coin  used  for 
change  ;  this  is  purposely  made  light  in  order  to 
keep  it  at  home.  In  speaking  of  coin,  or  money, 
this  change-money  or  token-money ,  will  not  be  again 
referred  to,  unless  specifically  mentioned. 

We  have  seen  that  wherever  metallic  money  came 
into  use,  it  displaced  all  the  cruder  forms  of  money. 
But  the  line  of  advance  did  not  end  there.  One 
metal  displaced  another,  the  incoming  one  always 
having  greater  efficiency  than  the  outgoing  one. 
Copper  was  the  money  of  Rome  in  her  earlier  days, 
and  is  the  legal  money  of  China  to-day.  If  we  could 
know  all  the  forms  of  money  in  the  world,  we  should 
doubtless  find  that  the  baser  metals  are  still  in  use 
in  some  places.  The  order  of  progress  is  that  each 
in  turn  shall  drop  out  of  use  as  money,  and  be  put 
to  other  uses  for  which  it  is  better  fitted.  The 
ever-increasing  demand  for  more  things  and  better 
things,  calls  for  better  implements  and  more  and 
more  intelligent  methods  of  workmanship.  The 
forces  that  control  this  movement  are  beyond  our 
reach,  as  we  shall  do  well  to  recognize,  and  so 
bring  our  feeble  attempts  at  monetary  legislation 


The  Beginning  of  Money 


1 1 


into  harmony  with  them,  instead  of  struggling  to 
overcome  them.  If  silver  is  now  going  out  of  use 
as  money,  in  the  natural  way,  we  must  let  it  go  ; 
we  cannot  stay  it,  and  the  attempt  to  do  so  can 
only  involve  us  in  trouble.  If,  when  iron  was  in 
use  as  money,  man  had  piled  it  away  in  vaults — as 
we  have  done  with  silver — and  had  kept  it  out  of 
other  uses,  is  it  not  plain  that  his  action  would  have 
retarded  the  progress  of  civilization  ? 

In  the  development  of  a  money  adapted  to  the 
wants  of  man,  silver  and  gold  have  come  to  be 
the  money  metals  of  the  most  advanced  nations. 
The  superior  efficiency  of  these  metals  has  been 
established  by  ages  of  use,  but  their  qualifica¬ 
tions  are  different.  In  the  earlier  stages  of  mer¬ 
cantile  enterprise,  silver  sufficed  for  all  the  require¬ 
ments  of  trade,  but  it  proved  inadequate  to  the 
demands  and  exigencies  of  that  larger  and  more 
complex  trade  which  we  call  commerce.  Gold  met 
these  requirements  more  effectively,  and  it  has 
become  the  money  of  commerce.  The  monetary 
similarity  of  silver  and  gold  prevents  the  rapid  dis¬ 
placement  of  the  one  metal  by  the  other,  while  their 
monetary  differences  make  both  the  metals  useful 
at  the  same  time  in  one  country  ;  so  that  we  find 
silver  retained  in  use  by  nations  like  England  and 


The  Natural  Law  of  Money 


1 2 


Germany,  though  gold  is  the  monetary  standard. 
Indeed,  it  is  hard  to  see  how  any  nation  could  al¬ 
together  discontinue  the  use  of  silver  as  money. 

Gold  has  always  been  more  valuable  than  silver, 
hence  less  time  is  required  to  weigh  or  to  count  a 
given  amount  in  gold,  and  when  money  has  to  be 
transported  from  one  place  to  another,  the  carriage 
of  gold  costs  less.  It  is  because  of  such  nice  differ¬ 
ences  as  these  that  the  changes  from  one  money  to 
another  have  taken  place,  man  always  seizing  upon 
the  agency  that  will  most  effectually  serve  his  pur¬ 
pose  and  supply  his  need.  Without  gold,  it  would 
now  be  hardly  possible  to  transact  the  volume  of 
business  that  is  done  in  the  world.  To  be  com¬ 
pelled  to  use  only  silver  money  would  be  a  check 
upon  enterprise  and  a  burden  to  commerce. 

If  a  nation  that  had  reached  the  gold  stage  of  in¬ 
dustrial  development  should  adopt  the  single  silver 
standard,  it  would  surely  be  at  a  disadvantage  in  its 
commercial  transactions  with  gold-standard  nations. 
Silver  is  not  only  more  cumbersome  than  gold,  but 
has  always  been  more  fluctuating — of  late  years 
much  more  so  than  formerly.  If  we  should  adopt  the 
single  silver  standard,  it  would  put  us  on  the  mone¬ 
tary  basis  of  Mexico  and  Russia  ;  with  these  nations 
we  should  be  at  no  disadvantage  in  our  commercial 


The  Beginning  of  Money 


13 


intercourse,  but  with  such  nations  as  England,  France 
and  Germany  we  should  be  at  great  disadvantage. 
In  their  dealings  with  us,  they  would  charge  us  for 
the  risk  they  incurred  in  accepting  a  less  stable 
money  than  their  own  ;  this  charge  would  be  added 
to  the  cost  of  goods  imported,  and  deducted  from 
the  price  of  goods  exported  by  us.  It  would  not  only 
increase  the  cost  of  our  imports  and  reduce  the  price 
of  our  exports,  but  it  would  also  reduce  the  price  at 
home  of  all  those  commodities  of  which  we  produce 
a  surplus ;  our  entire  products  of  cotton  and  of 
wheat,  for  example,  would  be  measurably  lowered  in 
price.  Everybody  knows  that  when  the  price  of 
wheat  goes  up  or  down  abroad,  it  correspondingly 
rises  or  falls  at  home,  for  the  price  at  home  is  gov¬ 
erned  by  the  price  that  we  can  get  for  the  surplus 
that  goes  abroad.  The  risk  from  fluctuations  of  our 
silver  money  would  be  as  constantly  present  in  all 
commercial  transactions  with  gold-money  countries 
as  is  the  risk  of  the  sea-carriage,  and  would  have  to 
be  insured  against  in  the  same  manner,  with  the  dif¬ 
ference  only  that  in  the  case  of  the  sea-risk  the  cost 
is  borne  equally  by  the  buyer  and  the  seller,  whereas 
in  the  case  of  our  fluctuating  money  the  cost  would 
fall  entirely  upon  us. 

In  order  to  render  to  man  the  highest  service  of 


14 


The  Natural  Law  of  Money 


i 


which  it  is  capable,  metallic  money  must  have  intrin¬ 
sic  value ,  stability ,  and  elasticity . 

The  fundamental  requisite  of  metallic  money  is 
that  it  shall  have  full  intrinsic  value.  From  the  be¬ 
ginning  of  money,  through  all  its  forms  down  to  the 
introduction  of  paper-money,  this  rule  has  governed 
inflexibly  at  all  times,  except  when  abrogated  or  in¬ 
terfered  with  by  rulers  and  law-makers.  The  term 
^intrinsic  value/’  as  here  used,  means  that  a  coin 
contains  its  full  denominational  worth  of  precious 
metal ;  in  other  words,  that  its  nominal  and  its 
actual  exchangeable  values  are  the  same.  If  coin 
contains  its  full  complement  of  precious  metal  when 
issued  from  the  mint,  and  if  its  free  circulation  be 
not  thereafter  interfered  with,  it  will  have  intrinsic 
value,  which,  combined  with  freedom  of  circulation,, 
will  give  it  stability  and  elasticity. 

The  stability  of  coin  must  rest  upon  the  value  of  the 
bullion  it  contains,  as  then  it  will  fluctuate  only  with 
the  fluctuations  of  the  bullion  market,  which  is  the 
highest  degree  of  steadiness  it  can  possibly  acquire. 
It  will  then  gain  access  to  the  marts  of  the  world,  and 
this  wide  range  of  circuit  will  enhance  its  “  elasticity,” 
which  term  is  used  to  express  the  readiness  with 
which  money  responds  to  the  demands  upon  it. 
The  importance  of  this  quality  in  money  will  be 


The  Beginning  of  Money 


15 


treated  in  more  detail  when  we  come  to  speak  of 
paper-money. 

It  is  obvious  that  the  larger,  broader,  and  more 
open  the  market  for  any  commodity,  the  more  steady 
will  be  the  price  of  that  commodity.  These  are 
marked  characteristics  of  the  bullion  market;  conse¬ 
quently,  to  give  to  coin  all  the  elements  of  efficiency 
it  can  possess,  it  is  only  necessary  to  start  it  into  cir¬ 
culation  with  its  full  weight  and  fineness  of  precious 
metal,  and  let  it  go  where  it  will.  Here  we  have  the 
natural  law  of  metallic  money  in  all  its  simplicity ; 
the  complexities  are  of  our  own  making. 

The  miner  of  California  in  1849  made  his  pur¬ 
chases  with  gold  dust,  weighing  it  in  scales.  It  was 
thus,  doubtless,  that  the  metals  were  measured  when 
they  first  came  into  use  as  money.  In  coining 
money  for  the  people,  our  government  performs  a 
very  important  service ;  the  bullion  is  minted  in 
convenient  forms  for  handling  and  for  expressing 
value,  thus  dispensing  with  scales  and  saving  time ; 
but  the  service  rendered  has  a  still  higher  signifi¬ 
cance.  The  stamp  of  the  government  is  a  sufficient 
assurance  that  the  coin  contains  the  required  amount 
of  the  precious  metal :  if  coining  were  left  to  indi¬ 
viduals,  there  would  arise  doubt  on  that  score  that 
would  greatly  lessen  the  efficiency  of  the  money. 


i6 


The  Natural  Law  of  Money 


If  money  is  to  be  efficient,  there  must  be  no  uncer¬ 
tainty  as  to  its  quality,  for  the  questioning  doubt 
will  limit  its  usefulness.  A  sense  of  security  gives 
mobility  to  money,  and  the  lack  of  that  sense 
cripples  it.  No  intelligent  community  was  ever 
deceived  by  debased  money  ;  nor  has  there  ever  been 
a  community  so  ignorant  that  it  would  not  in  course 
of  time  discover  the  deception.  Emerson  has  said 
that  not  even  a  tree  is  so  stupid  but  that  if  the  earth 
is  taken  from  its  roots,  it  will  find  it  out. 

Following  this  line  of  thought,  we  perceive  that  it 
was  the  questioning  doubt  that  led  to  the  coinage  of 
metals ;  for,  as  the  operation  of  assaying  is  both  dif¬ 
ficult  and  tedious,  it  would  become  necessary,  in 
order  to  facilitate  exchanges,  that  the  operation 
should  be  performed  and  verified  by  an  unquestioned 
authority  ;  and  this  work  the  people  would  naturally 
require  their  government  to  do  for  them.  We 
know  that  it  was  the  fineness,  not  the  weight,  of  the 
metal  that  was  stamped  on  the  first  rude  coins,  the 
people  weighing  them  for  themselves  in  making  their 
exchanges.  The  next  improvement  in  coinage  was  to 
stamp  the  weight  on  the  coins,  and  these  pieces  were 
designated  by  their  weight.  The  Roman  “  pondo  ” 
was  a  pound  of  copper,  the  English  “  pound  ” 
a  pound  of  silver,  and  the  English  “ penny”  a 


The  Beginning  of  Money 


17 


pennyweight  of  silver.  Money  passed  from  hand 
to  hand  by  tale ;  but  when  a  large  sum  was  to  be 
transferred,  it  was  weighed,  because  that  could  be 
done  more  easily  and  accurately.  The  practice  of 
weighing  large  amounts  of  coin  still  prevails. 

The  next  step  in  coinage  was  a  step  backward. 
The  coinage  came  to  be  known  as  “  king’s  money  ” ; 
it  bore  the  effigy  of  the  sovereign,  and  the  pieces 
were  more  artistically  minted  ;  but  they  were  given 
names  that  had  no  reference  to  their  weight  or  fine¬ 
ness.  This  irrelevant  naming  was  misleading,  and 
people  soon  lost  sight  of  money  as  a  commodity,  and 
came  to  regard  the  stamp  and  denomination  as  its 
valuable  part.  The  superstitious  awe  in  which  kings 
were  then  held  made  it  but  a  short  step  from  the 
belief  that  a  king’s  touch  would  cure  disease,  to  the 
belief  that  his  effigy  and  superscription  gave  value 
to  the  coin.  By  this  last  change  in  coin,  which 
obliterated  the  meaning  of  money,  the  people  lost 
control  of  their  coinage, — that  control  had  passed 
into  the  hands  of  the  kings.  Let  us  see  what  they 
did  with  it. 

It  may  be  stated  as  an  axiom  that,  down  to 
modern  times,  kings  have  been  lavish  and  wasteful 
in  their  expenditures,  and  that,  with  few  exceptions, 
they  have  been  governed  altogether  by  cupidity  in 


i8 


The  Natural  Law  of  Money 


their  dealings  with  their  subjects  ;  these  were  kept  in 
a  constant  conflict  with  their  rulers  to  retain  in 
rightful  possession  the  product  of  their  toil  and 
labor ;  the  one  power  that  should  have  protected 
them  in  that  right,  was  the  power  they  dreaded  most. 
The  long  conflict  developed  into  a  struggle  for  politi¬ 
cal  supremacy,  and  while  it  went  on,  the  wealth-pro¬ 
ducing  capacity  of  the  people  was  maintained  or 
diminished  in  proportion  as  the  contest  went  in 
their  favor  or  against  them.  When  resistance  to  the 
demand  of  the  ruler  ceased  altogether,  the  people 
sank  into  poverty  and  serfdom  ;  when  this  resistance 
was  successful,  the  people  rose  to  affluence  and  polit¬ 
ical  independence.  The  people  of  England,  after 
a  long  monetary  struggle  with  their  kings,  succeeded 
in  appropriating  to  themselves  exclusive  control  of 
the  revenues  and  expenditures  of  the  kingdom ;  the 
coining  of  money  continued  to  be  a  prerogative  of 
the  king,  but  gradually  it  came  under  the  direction, 
and  finally  under  the  absolute  control,  of  Parliament. 

A  common  and  favorite  method  adopted  by  rulers 
to  raise  money  was  to  abstract  from  the  coinage  a 
portion  of  its  precious  metal,  and  to  substitute 
therefor  a  cheaper  metal ;  when  resistance  was  made 
to  receiving  such  money,  its  circulation  was  enforced 
by  mandate.  This  doubtless  seemed  to  the  rulers  a 
ready  road  to  wealth,  but  nothing  could  have  been 


The  Beginning  of  Money 


T9 


more  destructive  of  the  prosperity  of  their  people, 
or  of  their  own  prosperity.  A  debased  coinage 
seems  to  have  entered  into  the  experience  of  every 
civilized  nation  at  some  period  of  its  history.  Among 
the  Romans,  the  pondo  decreased  to  a  half  ounce  of 
copper,  in  England  the  pound  sterling  to  less  than 
one-third  of  a  pound  of  silver,  and  some  coins  in 
Scotland  were  reduced  to  less  than  one-sixtieth  of 
their  normal  value.  That  the  rulers  have  been 
chiefly  responsible  for  this  debasement  will  be  seen 
when  we  come  to  consider  the  Gresham  law. 

There  is  an  interesting  chapter  in  Macaulay’s  His¬ 
tory  of  England  which  describes  how  the  clipping  and 
sweating  of  coin  gradually  so  lowered  the  standard 
of  money  as  to  bring  great  distress  upon  the  nation. 
This  was  in  the  time  of  William  III.  ;  the  vigorous 
and  intelligent  action  of  Parliament  corrected  the 
evil ;  no  less  a  personage  than  Sir  Isaac  Newton  was 
appointed  Warden  of  the  Mint,  while  the  famous 
philosopher  John  Locke  expounded  his  theory  of 
money. 

We  have  long  ceased  to  regard  the  king’s  person 
as  more  sacred  than  that  of  a  subject ;  nevertheless, 
a  remnant  vof.  that  old  superstitious  belief  in  the 
potency  of  sovereignty  found  its  way  to  the  New 
World,  and  is  here  with  us  still,  to  tangle  our  thoughts 
and  blur  our  perceptions. 


CHAPTER  II. 

BI-METALLISM  AND  MONO-METALLISM. 

IN  calling  our  silver  and  gold  coins  by  the  same 
name,  “  dollar,”  and  in  trying  to  hold  them  at 
an  equal  value  under  a  fixed  ratio,  is  there  not  evi¬ 
dence  of  a  lingering  belief  that  the  power  of  sover¬ 
eignty  can  regulate  the  value  of  coin  ?  And  is  not 
the  effort  to  enforce  the  circulation  of  the  two  coins 
at  equivalent  value  a  survival  of  the  king’s  mandate 
in  modified  form  ?  Have  we  not  overlooked  the  fact 
that  silver  and  gold  are  commodities,  the  values  of 
which  are  regulated  only  in  one  way,  and  by  the 
same  rule  that  regulates  the  value  of  other  com¬ 
modities — by  letting  them  find  in  open  market  what 
that  value  is  ?  They  are  not  alike,  not  even  in  their 
money  functions.  They  are  both  metals,  to  be  sure, 
as  wheat  and  barley  are  both  cereals :  what  more 
cogent  reason  is  there  for  making  silver  and  gold  an 
equivalent  tender  than  for  making  wheat  and  barley 


20 


Bi-metallism  and  Mono-metallism 


21 


an  equivalent  tender  ?  Is  it  not  evident  that  we 
have  inherited  from  the  past  a  vague  notion  that  we 
can,  in  some  mystic  manner,  regulate  the  value  of 
our  metallic  money  ?  If  a  legislative  enactment  could 
confer  that  power,  similar  legislation  would  enable  us 
to  regulate  the  value  of  all  our  commodities. 

The  well-meant  efforts  to  hold  silver  and  gold  coin 
at  a  parity  in  value  have  had  no  other  effect  than 
to  drive  one  of  these  metals  out  of  active  current 
service.  This  has  been  our  experience  from  the 
beginning  of  our  government  down  to  this  day. 
We  have  not  had  both  coins  in  circulation  simul¬ 
taneously,  except  during  the  short  intervals  when 
one  was  going  out  and  the  other  coming  in,  and  all 
other  nations  have  shared  this  experience.  When¬ 
ever  the  metals  composing  the  two  coins  are  put  up 
for  sale  in  open  market,  the  price  of  each  is  governed 
by  the  supply  of  and  demand  for  each  ;  in  no  other 
way  can  their  true  value  be  ascertained ;  each  must 
stand  on  its  own  merits.  The  efforts  of  governments 
to  give  them  equality  in  value  seem  to  have  had  the 
opposite  effect. 

It  is  estimated  that  three-fifths  of  the  volume  of 
silver  and  gold  in  the  world  are  used  in  the  arts,  and 
two-fifths  in  money ;  but  this  is  only  an  estimate — 
accurate  figures  cannot  be  had.  That  the  amount 


22 


The  Natural  Law  of  Money 


of  these  metals  used  as  money  is  sufficiently  large 
to  considerably  affect  their  market  value  is,  however, 
a  matter  of  course  ;  but  that  the  efforts  to  hold  them 
at  a  relatively  fixed  value  have  utterly  failed,  is 
proved  by  the  whole  history  of  bi-metallism. 

All  the  leading  commercial  nations  at  one  time  or 
another  have  tried  to  harness  these  two  money- 
metals  together,  and  make  of  them  one  monetary 
standard.  We  may  suppose  the  first  step  towards 
this  end  to  be  the  determining  of  the  amount  of 
silver  and  of  gold  respectively  that  shall  constitute 
coins  of  equal  value,  the  ratio  being  adjusted  to  the 
relative  market  value  of  these  metals  at  the  time. 
The  act  authorizing  this  coinage  would  also  make 
the  silver  and  gold  coin  an  equivalent  tender  at  the 
ratio  fixed.  This  is  what  is  termed  bi-metallism.  In 
course  of  time,  the  market  values  of  the  two  metals 
part  company ;  one  may  go  up  or  the  other  down,  or 
they  may  move  simultaneously  in  opposite  directions. 
As  soon  as  this  separation  takes  place,  the  coin  of  the 
metal  which  has  risen  in  value  begins  to  disappear 
from  the  circulation.  This  movement,  unlike  the 
intelligent  order  of  free  selection  (in  which  the 
superior  money  supersedes  the  inferior),  has  nothing 
to  do  with  the  inherent  fitness  of  the  metals  for  ser¬ 
vice  as  money ;  indeed,  the  coin  going  out  of  circu- 


Bi-metallism  and  Mono-metallism 


23 


lation  may  be  the  more  serviceable  money  for  the 
time  and  place ;  it  disappears  only  because  it  is 
worth  more  as  bullion  than  the  coin  remaining  in 
circulation. 

The  mode  of  operation  whereby,  contrary  to  the 
law  of  natural  displacement,  an  inferior  money  may 
expel  a  superior  money  from  the  circulation,  is  known 
as  the  Gresham  law,  and  is  so  called  because  first  ex¬ 
pounded  by  Sir  Thomas  Gresham,  who  lived  in  the 
sixteenth  century,  and  who  was  the  founder  of  the 
Royal  Exchange  of  London.  The  Gresham  law 
would  never  have  been  heard  of  had  coin  passed  by 
weight  only,  because  in  that  case  the  recipient  would 
have  taken  the  coin  only  at  the  market  value  of  the 
precious  metal  it  contained  ;  but  when  coin  became 
king’s  money  and  people  were  required  to  accept  it 
by  tale  at  its  face  value,  objection  was  made  to  pieces 
that  did  not  contain  the  full  complement  of  precious 
metal ;  as,  however,  the  king’s  money  was  manda¬ 
tory,  it  could  not  be  refused  so  long  as  his  imprint 
remained  upon  the  coin.  The  fact  that  coin  could 
not  be  refused — whether  it  contained  the  full  com¬ 
plement  of  precious  metal  or  not — was  practically 
an  invitation  to  every  holder  of  a  coin  to  abstract 
some  metal  from  it  before  passing  it,  and  this  was 
practised  to  such  an  extent  in  England  that  in  course 


24 


The  Natural  Law  of  Money 


of  time,  and  by  slow  degrees,  the  whole  coinage  of 
the  realm  was  reduced  to  about  two-thirds  of  its 
standard  weight  and  value. 

As  nothing  is  more  destructive  of  industrial 
prosperity  than  a  money  of  indefinite  value,  this 
continuous  mutilation  of  the  coinage  finally  in¬ 
volved  the  nation  in  intolerable  distress,  and  how 
to  restore  the  coinage  to  its  normal  standard  was 
a  problem  the  solution  of  which  long  puzzled  the 
people  of  England.  The  belief  was  general  that  if 
the  full-weight  coin  were  put  into  circulation,  it 
would  of  itself,  as  being  a  more  desirable  money, 
drive  the  light-weight  coin  out  of  use ;  and  this  view 
seemed  all  the  more  reasonable  in  that  the  people 
were  unanimous  in  demanding  of  their  government  a 
reformation  of  the  coinage. 

But  this  view  did  not  take  into  account  the  natural 
forces  that  control  the  circulation  of  money,  nor  did 
it  recognize  the  personal  character  of  money,  and  its 
relationship  to  the  individual ;  it  regarded  money 
only  from  the  public  stand-point — as  an  impersonal 
agency.  As  all  the  transformations  and  movements 
of  money  take  place  naturally,  through  individuals 
acting  separately  and  independently,  each  one  in  his 
own  interest,  and  without  any  purpose  to  further  a 
general  law,  we  must  recognize  this  personal  and 


Bi-metallism  and  Mono-metallism  25 


private  interest  as  the  real  and  only  means  whereby 
the  coinage  could  be  restored  to,  and  preserved  in, 
its  normal  integrity.  So  long  as  the  king’s  effigy 
was  the  important  factor,  individuals  continued  to 
abstract  from  the  coin  any  metal  that  could  be  taken 
without  impairment  of  the  effigy  ;  but  if  the  law  were 
repealed  which  gave  the  king’s  effigy  the  quality  of 
money,  the  coin  would  be  taken  only  at  its  bullion 
market  value.  Each  individual,  acting  for  himself, 
without  the  least  reference  to  the  public  interest, 
would  refuse  to  receive  the  coin  on  any  other  terms, 
which  would  at  once  put  a  stop  to  any  further 
debasement  of  the  coinage. 

As  then  there  could  be  no  further  profit  in  the 
clipping  and  sweating  of  coin,  clipping  and  sweating 
would  cease ;  the  debased  coin  at  its  bullion  market 
value  would  be  as  good  money  intrinsically  as  that 
which  came  fresh  from  the  mint,  but  as  the  clipped 
pieces  would  be  of  different  values  and  intrinsically  be¬ 
low  their  nominal  value,  they  could  be  used  in  trade 
only  by  weighing  them.  Hence  the  same  individual 
interest  that  had  formerly  led  to  the  debasement 
of  the  coinage  would  now  require  that  the  pieces 
be  made  of  uniform  weight  and  fineness  for  the 
greater  convenience  of  counting  them  and  of  ex¬ 
pressing  value. 


26 


The  Natural  Law  of  Money 


In  thus  minutely  defining  the  means  by  which  a 
debased  coinage  could  be  restored,  our  object  is  to 
call  especial  attention  to  the  fact  that  the  debase¬ 
ment  of  the  money  was  caused  solely  by  its  legal- 
tender  quality,  and  that  its  restoration  and  preserva¬ 
tion  could  only  be  effected  by  the  removal  of  that 
cause.  Nothing  more  was  needed,  because,  as  soon  as 
the  money  was  deprived  of  its  legal-tender  feature,  it 
came  underthe  law  of  natural  displacement,  and  under 
this  law,  it  is  only  the  money  of  superior  efficiency 
that  can  maintain  supremacy  in  the  circulation; 
whereas,  when  the  artificial  quality  of  legal-tender  is 
given  to  money,  it  is  always  the  cheaper  money  that 
expels  the  money  of  higher  value ,  without  the  least 
reference  to  the  efficiency  of  either. 

The  English  government  was  finally  enabled  to 
restore  the  coinage  by  decreeing  that  clipped  coin 
should  pass  by  weight  only,  thus  virtually  repealing 
its  legal-tender  quality  ;  but  before  taking  this  step 
the  government  had  confidently  expected  to  ac¬ 
complish  its  purpose  simply  by  recoining  the  muti¬ 
lated  pieces.  As  the  government  received  the 
clipped  coin  at  its  full  nominal  value,  and  as  the 
people  were  consequently  eager  to  obtain  the  new 
money  in  exchange  for  their  clipped  money,  it  was 
taken  for  granted  that  the  coinage  could  be  re-estab- 


Bi-metallism  and  Mono-metallism  27 


lished  within  a  short-  time  by  increasing  the  output 
of  the  mints  ;  and  this  was  accordingly  done.  Much 
of  the  coin  in  circulation  had  been  minted  by  hand, 
with  shears  and  hammer,  at  earlier  dates  than  the 
time  now  referred  to,  which  is  1695-6 ;  these  pieces 
were  so  rudely  formed  that  the  edges  could  be 
clipped  without  detection  ;  but  as  the  new  coin  was 
minted  with  milled  edges,  to  clip  it  was  a  more 
hazardous  undertaking,  and  this  strengthened  the 
public  confidence  that  a  sound  currency  would  soon 
be  established. 

Meantime,  the  law  against  clipping  was  vigor¬ 
ously  enforced  ;  counterfeiting  had  long  been  pun¬ 
ished  with  the  same  extreme  penalties  as  treasoa, 
and  in  the  reign  of  Elizabeth  the  clipping  of  coin  was 
also  made  a  capital  offence.  Besides  the  clipped 
silver  money,  there  were  also  in  circulation  at  that 
time  gold  pieces  issued  in  the  reign  of  Henry  VIII., 
which  had  been  debased  by  that  monarch  to  half 
their  nominal  value,  and  it  is  to  this  gold  coin  that  Sir 
Thomas  Gresham  especially  referred  in  expounding 
his  law,  which  he  did  in  a  letter  to  Queen  Elizabeth, 
written  in  the  year  1558.  Though  he  explained  the 
practical  working  of  the  debased  money,  showing 
clearly  how  it  drove  the  full-weight  coin  of  Elizabeth 
from  the  circulation  and  from  the  country,  he  did 


28 


The  Natural  Law  of  Money 


not  suspect  the  real  cause  of  the  evil,  which  was  the: 
mandatory  character  of  the  debased  coin.  He  noted 
in  this  letter  the  disadvantage  which  the  English 
merchants  labored  under  in  their  exchanges  with  the 
continent — for  it  is  in  a  foreign  country  that  the 
coin  of  a  nation  must  surely  answer  the  test  of  bul¬ 
lion  value.  The  superstitious  awe  that  hedged  a 
king  in  his  own  country  had  no  influence  upon  the 
value  of  his  coin  when  that  coin  went  abroad  ;  nor 
were  the  Jews,  who  were  the  principal  dealers  in 
money  and  bills  of  exchange,  in  the  least  misled  by 
the  king’s  image  on  the  coin. 

A  persecuted  and  plundered  race,  everywhere  in 
Europe  denied  the  right  of  ownership  in  real  estate, 
the  Jews  had  no  avenue  of  commercial  activity 
save  the  dealing  in  such  personal  property  as  could 
easily  be  secreted  ;  thus  they  found  their  recompense 
in  the  establishment  of  a  monopoly  of  the  most 
lucrative  of  trades.  Themselves  freed  from  monetary 
delusions,  their  course  as  money-changers  operated 
as  a  constant  protest  against  the  debasement  of  the 
coinage,  and  so  contributed  to  raise  the  standard  of 
monetary  integrity. 

The  English  government  having  in  1695  entered 
seriously  upon  a  reform  of  the  coinage  by  practically 
giving  full  weight  for  light-weight  pieces,  while  at 


Bi-metallism  and  Mono-metallism 


29 


the  same  time  requiring  that  both  full-  and  light¬ 
weight  pieces  should  circulate  at  their  nominal 
value,  and  there  being  no  doubt  in  the  public  mind 
as  to  the  ultimate  success  of  this  measure,  attention 
was  naturally  fixed  upon  the  circulation  to  note  the 
process  of  change  from  the  old  money  to  the  new. 
Great  was  the  disappointment  when,  after  large  sums 
of  the  new  money  had  been  coined  and  paid  out, 
there  was  no  perceptible  increase  of  new  pieces  in 
the  circulation  ;  they  vanished  almost  as  fast  as  they 
came  from  the  mint.  The  financiers  and  the  politi¬ 
cians  of  that  age  seem  alike  to  have  expected  that 
the  new  money  would  soon  displace  the  old,  and,  as 
Macaulay  has  said,  they  “  marvelled  exceedingly  that 
everybody  should  be  so  perverse  as  to  use  light 
money  in  preference  to  good  money.” 

But  it  was  really  everybody’s  preference  for  the  full- 
weight  pieces  that  kept  these  pieces  out  of  the  circula¬ 
tion,  for,  as  their  bullion  value  was  half  as  much  more 
than  the  bullion  value  of  the  clipped  pieces,  each 
person  who  received  a  good  piece  naturally  held  it 
and  paid  out  his  clipped  money.  Each  naturally 
sought  to  appropriate  the  extra  value  that  the  new 
coin  possessed,  and  this  he  could  do  in  several  ways  : 
he  could  melt  it  and  sell  it  as  bullion  ;  he  could 
abstract  the  extra  value  from  it  by  paring  it  down 


30 


The  Natural  Law  of  Money 


before  passing  it  ;  or  he  could  hoard  it  until  he  found 
opportunity  to  pass  it  at  its  actual  bullion  value. 
All  these  things  were  done  ;  but  that  the  rapid  dis¬ 
appearance  of  the  new  coin  from  the  circulation  arose 
mainly  from  hoarding  by  the  people  who  could 
afford  to  hoard,  was  afterwards  shown  by  its  re¬ 
appearance  when  the  government  decreed  that  the 
clipped  coin  should  no  longer  pass  as  money. 

For  at  least  a  hundred  years  clipping  had  been  a 
capital  offence ;  a  law  was  now  enacted  against  melting 
or  exporting  coin,  but  it  could  not  be  enforced  ;  nor 
could  hoarding  be  prevented  ;  even  the  laws  against 
clipping  were  ineffective,  notwithstanding  the  terrible 
punishments  inflicted  upon  offenders.  Macaulay 
narrates  that  in  one  day  seven  men  were  hanged  and 
one  woman  burned  for  clipping,  yet  the  number  of 
clippers  multiplied  in  proportion  as  the  volume  of 
new  coin  thrown  into  the  currency  increased  ;  which 
demonstrates  not  only  the  futility  of  governmental 
regulation  of  a  people’s  money,  but  its  utterly  de¬ 
moralizing  effect  upon  money  and  people  alike. 
Harsh  as  was  the  law  against  the  crime  of  clipping, 
it  was  even  more  unjust  than  harsh,  for,  in  compel¬ 
ling  the  acceptance  of  debased  coin  at  its  nominal 
rather  than  at  its  actual  value,  the  government  was  in 
fact  an  abettor  of  the  crime  it  was  seeking  to  suppress. 


Bi-metallism  and  Mono-metallism 


3i 


Although  the  English  government,  by  demone¬ 
tizing  the  clipped  coin,  was  enabled  to  restore  the 
coinage,  this  action  was  not  prompted  by  any  intel¬ 
ligent  perception  of  the  real  cause  of  the  debasement, 
but  came  upon  government  and  people  alike  as  a 
dynamic  necessity.  We  have  seen  that  it  was  the 
legal-tender  quality  of  the  coin  that  caused  its  de¬ 
basement,  and  that  if  it  had  been  deprived  of  this 
quality,  individual  interest  and  action  would  have 
restored  and  preserved  the  coinage  in  its  integrity ; 
but  as  it  was  the  general  belief  that  money  circulated 
only  through  the  mandatory  authority  of  the  Crown, 
this  simple,  natural  law  of  money  was  not  perceived. 
In  other  words,  the  trying  experience  of  the  English 
people  with  their  clipped  coin  did  not  dispel  the  de¬ 
lusive  idea  that  the  Crown  could  regulate  the  value 
of  money  ;  in  the  belief  of  the  people,  the  clipped 
coin  ceased  to  pass  because  the  decree  had  gone  out 
that  it  should  not  pass,  and  the  sound  coin  passed 
because  the  decree  had  gone  out  that  it  should  pass. 

The  same  Parliament  which  decreed  that  the 
clipped  coin  should  not  pass,  also  made  it  a  penal 
offence  to  give  or  take  more  than  twenty-two  shil¬ 
lings  for  a  guinea,  which  is  conclusive  evidence  that 
this  Parliament  believed  in  the  power  of  sovereignty 
to  regulate  the  value  of  the  coin.  Silver  was  then 


32  .The  Natural  Law  of  Money 


the  predominant  money  ;  it  was  this  metal  that  was 
the  common  medium  of  exchange  and  measure  of 
values,  gold  occupying  a  secondary  place.  The  name 
“  guinea  ”  is  still  used  in  England  to  express  twenty- 
one  shillings,  though  the  coin  is  no  longer  minted  or 
in  circulation  ;  the  actual  value  of  these  gold  pieces 
then,  as  measured  by  the  new  silver  pieces,  was 
twenty-one  shillings  and  sixpence,  but  before  the 
coinage  was  restored,  their  exchangeable  value,  as 
measured  by  the  clipped  money,  was  about  thirty 
shillings.  Though  the  clipped  money  could  not  be 
made  to  pass  current  at  its  nominal  value,  it  did  pass 
for  more  than  its  actual  bullion  value,  for  the  reason 
that  the  government  accepted  it  at  its  nominal  value 
for  the  payment  of  taxes.  The  decree  of  Parliament 
in  reference  to  the  guinea  was  supererogatory  legis¬ 
lation,  as,  after  the  restoration  of  the  coinage,  this 
piece  passed  at  its  normal  value  of  twenty-one 
shillings  and  sixpence. 

In  the  act  of  Parliament  which  undertook  to 
hold  the  gold  guinea  in  circulation  at  a  fixed  silver 
valuation,  is  plainly  indicated  the  mandatory  theory 
of  money  which,  twenty-one  years  later  (1717),  led 
England  to  adopt  bi-metallism,  and  which  has  more  or 
less  influenced  her  monetary  legislation  down  to  the 
present  time.  After  nearly  a  century’s  practical  ex- 


Bi-metallism  and  Mono-metallism 


33 


perience  with  bi-metallism,  England  abandoned  it  for 
mono-metallism  ;  gold  meantime  having  become  the 
dominant  metal,  was  made  her  monetary  standard. 

The  course  taken  by  England  with  her  metallic 
money,  and  which  has  been  followed  by  some  of 
the  chief  commercial  nations  of  Europe,  may  be 
briefly  stated  thus  :  bi-metallism  has  first  been 
adopted  ;  then,  after  experience  has  shown  that  the 
silver  and  the  gold  coin  cannot  be  held  at  a  parity, 
the  law  which  was  designed  to  make  one  monetary 
standard  out  of  two  independent  money  metals,  has 
been  repealed  ;  the  metal  found  to  be  the  less 
serviceable  has  been  discarded,  and  the  other  by 
enactment  made  the  only  legal  tender,  thus  creating 
what  is  called  mono-metallism .  Whilst  mono-metal¬ 
lism  is  undoubtedly  an  advance  upon  bi-metallism, 
inasmuch  as  it  furnishes  a  more  definite  monetary 
standard,  both  systems  embody  the  mandatory 
theory,  and  interfere  with  the  natural  flow  of  money. 

Although  the  mandatory  theory  of  money  is  still 
acted  upon,  even  by  the  most  advanced  govern¬ 
ments,  it  is  gradually  yielding  to  the  pressure  of 
natural  forces.  This  is  shown  especially  in  their 
coinage  legislation.  Except  in  bi-metallic  countries, 
no  attempt  is  now  made  to  enforce  the  circulation 
of  coin  on  any  other  basis  than  its  intrinsic  value ; 


34 


The  Natural  Law  of  Money 


the  pieces  are  by  most  nations  made  a  legal  tender 
at  a  full  and  a  short  weight,  the  difference  between 
these  weights  being  very  slight,  and  designed  only 
to  provide  a  margin  for  the  ordinary  abrasion  from 
a  reasonable  length  of  service.  When  a  piece  falls 
below  its  short  weight  it  ceases  to  be  a  legal 
tender. 

There  is  really  no  more  occasion  for  a  legal  tender 
short  weight  in  coin  than  there  is  for  a  legal  tender 
short  weight  in  the  pound-weight.  A  moment’s  re¬ 
flection  will  show  that  the  tendency  of  such  legisla¬ 
tion  by  inciting  fraudulent  abrasion,  is  to  degrade 
coin  to  the  lowest  level  at  which  it  may  be  tendered. 
It  is  estimated  that  of  the  gold  in  the  currency  of 
England,  one-half  the  pieces,  amounting  to  fifty  mil¬ 
lion  pounds,  are  barely  above  their  short  weight. 
Higgling  over  short-weight  pieces  is  not  uncommon 
there,  although  this  is  precisely  what  the  long  and 
short  weight  is  intended  to  obviate. 

In  our  own  country,  coin  enters  so  sparingly  into  the 
general  circulation  that  the  deterioration  from  natural 
wear  is  very  much  slower  than  in  England,  and  the 
short  weight  is  so  nicely  adjusted  to  the  natural  wear 
by  our  Coinage  Act  of  1873,  that  there  is  practically 
no  temptation  to  fraudulent  abrasion. 

Clearly  there  is  no  need  of  making  coin  a  legal 


Bi-metallism  and  Mono-metallism  35 


tender  at  any  specified  weight.  If  governments 
would  confine  their  legislation  to  fixing  by  enact¬ 
ment  the  fineness  of  the  precious  metal  and  the 
number  of  grains  that  shall  constitute  each  piece 
of  a  given  name,  they  may  safely  leave  the  mainte¬ 
nance  of  the  coinage  in  its  integrity,  and  the  value 
of  the  pieces,  to  be  regulated  by  individual  interest 
and  action.  In  practice  this  point  of  monetary 
advancement  has  been  reached  by  most  of  the 
civilized  nations ;  but  in  the  useless,  although  com¬ 
paratively  harmless  act  of  decreeing  coin  a  tender 

* 

at  the  authorized  legal  weight  only,  is  manifested 
the  extreme  conservatism  which  still  clings  to  the 
old  delusion  that  legislation  may  in  some  vague  sense 
regulate  the  value  of  coin. 

Although  this  delusion  is  harmless  as  embodied  in 
many  coinage  acts,  it  becomes  extremely  mischiev¬ 
ous  when  the  attempt  is  made  to  regulate  the  value 
of  the  silver  and  gold  coin  at  a  fixed  ratio  of  weights 
under  the  ruling  of  bi-metallism  ;  and  it  is  only  in 
a  less  degree  mischievous  when  one  of  the  money 
metals  is  ejected  from  the  circulation  under  the 
ruling  of  mono-metallism.  As  the  efficiency  of  coin 
as  a  medium  of  exchange  depends  on  its  circu¬ 
lating  only  at  its  bullion  market  value,  and  on  the 
freedom  with  which  it  may  circulate,  any  attempt  to 


36  The  Natural  Law  of  Money 


interfere  with  these  natural  conditions  operates  as  a 
restriction  of  individual  rights. 

A  government  can  render  most  important  service 
by  assaying  the  precious  metals  and  minting  the  coin, 
by  verifying  the  fineness  and  weight  of  the  pieces, 
by  guarding  the  coin  against  criminal  deterioration, 
and  by  shaping  the  pieces  in  accordance  with  the 
actual  needs  of  the  time.  More  than  this  no  govern¬ 
ment  can  do  without  trenching  upon  the  freedom  of 
the  money,  and,  as  a  consequence,  upon  the  rights  of 
the  individual,  for  his  rights  are  bound  up  with  his 
money,  and  his  money,  be  it  ever  so  sound,  must 
have  freedom  to  render  him  its  most  efficient  service. 

Money  is  identified  with  man  as  an  individual, 
and  not  with  man  in  mass ;  it  is  through  the  in¬ 
dividual  acting  independently  that  it  acquires  all  its 
potency.  Moved  by  the  incentive  of  gain,  and  for 
the  gratification  of  his  desires,  the  individual  works 
only  for  himself  and  for  those  who  come  within  the 
compass  of  his  affections.  It  is  by  such  delicate, 
complex,  and  hidden  relationships  to  the  individual 
that  money  becomes  the  circulating  medium  of  a 
nation ;  and  as  the  free  circulation  of  the  blood 
vivifies  the  body,  so  the  unrestricted  circulation  of 
money  vivifies  the  nation.  If  governments  had 
limited  their  legislation  to  the  simple  requirements 


Bi-metallism  and  Mono-metallism  37 


mentioned  above,  Sir  Thomas  Gresham  would  have 
had  no  occasion  to  expound  the  law  that  inverts  the 
order  of  natural  selection  and  drives  money  from 
circulation  regardless  of  its  efficiency  ;  nor  would  we 
have  any  silver  question  to  discuss  ;  the  two  metals 
might  then  circulate  as  efficient  money  in  one 
country  at  the  same  time ;  if  one  went  out  of  use, 
it  would  be  because  it  was  no  longer  needed  and 
could  do  better  service  in  other  occupations ;  the 
transition  would  be  quiet  and  without  disturbance 
to  industry. 

Let  us  now  make  an  application  of  the  principles 
of  money  to  the  actual  workings  of  bi-metallism,  as 
exemplified  by  the  experience  of  our  own  and  other 
nations.  It  has  been  shown  that  money  may  be  any 
commodity  that  is  used  as  the  common  medium  of 
exchange,  which  is  money  only  when  so  used.  From 
the  beginning  of  trade  down  to  the  introduction  of 
paper-money,  commodities  employed  as  money 
necessarily  possessed  for  that  use  full  intrinsic  value, 
except  when  kings,  clippers,  or  sweaters  abstracted 
a  part  of  that  value,  or  when  law-makers  undertook 
to  create  a  factitious  value.  Although  the  money 
of  the  Massachusetts  Indians  had  no  value  to  the 
colonists,  we  need  not  doubt  that  it  had  real  value 
to  the  Indians;  that  is,  it  had  cost  them  as  much 


38 


The  Natural  Law  of  Money 


to  produce  as  they  could  get  for  it.  The  colonists 
counterfeited  this  money,  which  they  would  hardly 
have  done  if  they  could  have  produced  the  genuine 
more  cheaply  than  they  could  obtain  it  through 
trade.  It  has  also  been  shown  that  silver  and  gold, 
through  a  series  of  displacements,  proved  themselves 
better  qualified  for  monetary  service  than  all  other 
commodities,  and  so  came  into  use  wherever  a 
people  had  risen  high  enough  in  industrial  civiliza¬ 
tion  to  appreciate  this  superiority.  It  has  also  been 
shown  that  silver  and  gold  differ  in  their  monetary 
functions,  the  first  being  adapted  to  trade,  while  the 
second  performs  the  larger  and  more  complex  duties 
of  commerce ;  and  when  we  extend  our  inquiries  to 
paper-money,  we  shall  see  that  its  functions  differ 
from  those  of  silver  and  gold  ;  that  it  is  an  implement 
of  higher  refinement  than  either,  performing  more 
complex  duties ;  that  it  is,  in  short,  the  money  of  a 
still  higher  civilization,  requiring  for  its  most  effec¬ 
tive  working  a  higher  intelligence  and  a  higher 
degree  of  integrity.  It  has  also  been  shown  that 
metallic  money  acquires  its  highest  efficiency  when 
left  perfectly  free  to  find  its  actual  value  in  open 
market. 

The  open  market  here  referred  to  really  represents 
the  whole  world,  for  the  precious  metals  are  every- 


Bi-metallism  and  Mono-metallism  39 


where  in  use  and  everywhere  bought  and  sold  ;  it 
not  only  embraces  the  accumulations  of  all  former 
ages,  but  receives  the  entire  current  product  of  these 
metals,  which  is  continuously  pouring  into  it.  While 
we  cannot  compute  either  the  amount  of  the  precious 
metals  in  the  world,  or  the  amount  required  for  the 
many  different  uses  to  which  they  are  applied,  we 
can  easily  see  that  fortunately  this  market  is  too 
large,  and  broad,  and  free,  to  be  brought  under 
governmental  control ;  if  it  were  not  so,  the  useful¬ 
ness  of  the  metals  for  money  service  would  surely  be 
paralyzed  or  destroyed.  In  the  magnitude  and 
freedom  of  this  market,  in  the  constantly  changing 
form  of  the  metals  as  they  pass  from  one  use  to 
another,  a  continuous  movement  is  kept  up,  and  an 
even  poise  is  preserved  by  innumerable  buyings 
and  sellings.  Every  change  that  peoples  may  make 
in  their  money,  every  transaction  in  trade  and  com¬ 
merce,  w’herever  made,  touches  and  influences  to 
some  extent  this  wonderful  market. 

A  little  thoughtful  study  of  this  market  should 
suffice  to  show  that  the  bi-metallic  theory  of  money 
is  a  mistake.  A  slight  change  in  the  market  value  of 
silver  and  gold  from  the  ratio  fixed  by  law  will  drive 
one  of  these  metals  out  of  monetary  service  ;  and  the 
only  effect  of  an  effort  to  retain  both  by  making  the 


40 


The  Natural  Law  of  Money 


coins  interchangeable  will  be  to  impose  upon  one  the 
burden  of  carrying  the  other. 

England  adopted  bi-metallism  in  1717,  and  changed 
to  mono-metallism  in  1816,  selecting  gold  as  her 
standard.  Germany  made  a  similar  change  in  1871, 
and  her  example  was  followed  by  Norway,  Sweden, 
Denmark,  and  our  own  country,  all  within  three 
years.  But  there  is  no  evidence  that  these  nations 
were  prompted  in  their  action  by  the  fear  of  an  ap¬ 
proaching  decline  in  silver,  or  by  any  other  desire 
than  to  secure  a  more  stable  standard  of  money. 
The  price  of  silver  had  not  materially  fallen  at  the 
time  these  changes  were  made,  nor  had  the  output 
of  the  silver  mines  increased  to  any  marked  degree, 
as  they  did  later ;  so  that  no  one  could  have  had  any 
reason  to  suppose  that  silver  would  fall  in  price,  as 
it  subsequently  did. 

By  demonetizing  silver  in  1873,  we  doubtless 
helped  to  strengthen  the  general  movement  tow¬ 
ards  mono-metallism,  but  in  no  other  way  could 
our  action  have  had  any  effect  on  the  price  of 
silver,  as  for  about  thirty  years  there  had  been  prac¬ 
tically  no  silver  dollars  in  our  circulation,  and  in  1873 
we  were  on  a  paper-money  basis.  That  our  subse¬ 
quent  action,  in  passing  the  Silver  Bill  of  1878  had  a 
depressing  effect  on  the  silver  market,  is  more  than 


Bi-metallism  and  Mono-metallism  41 


probable ;  it  was  regarded  by  the  world  at  large  as 
an  effort  to  give  to  the  metal  an  artificial  value,  and 
this  impression  created  a  distrust  that  greatly  re¬ 
stricted  the  freedom  of  the  market.  An  attempt 
made  a  few  years  ago  to  control  the  copper  market 
of  the  world  created  a  similar  distrust,  which  had  the 
effect  of  putting  the  price  of  copper  below  its  nor¬ 
mal  level,  as  was  plainly  seen  when  the  syndicate, 
which  had  attempted  to  advance  the  price,  broke 
down  in  bankruptcy,  thus  putting  a  stop  to  its  inter¬ 
ference. 

France  has  done  more  than  any  other  nation  to 
maintain  the  double  standard ;  her  bankers  and 
economists  have  been  strong  supporters  of  this 
monetary  theory  ;  five  other  nations  co-operate  with 
her,  composing  what  is  termed  the  Latin  Union; 
yet  in  all  these  countries,  if  there  is  not  a  premium 
on,  there  will  be  a  preference  for,  one  of  the  metals ; 
and  even  a  preference  is  sufficient  to  lessen  the  use¬ 
fulness  of  both.  France  closed  her  mints  against 
free  coinage  of  silver  in  1876,  and  it  is  quite  evident 
from  the  way  in  which  she  is  accumulating  gold  and 
discarding  silver,  that  she  is  moving  toward  a  mono¬ 
metallic  standard. 

There  is  a  limit  to  the  amount  of  money  that  any 
community  can  employ  productively,  and  what  that 


42 


The  Natural  Law  of  Money 


limit  is  can  never  be  measured  mechanically.  If  the 
money  metals  are  left  free  to  flow  in  and  out  of  a 
country,  their  supply  will  be  self-regulating,  and 
every  legitimate  demand  for  metallic  money  will  be 
met.  If  the  supply  of  these  metals  in  the  world  at 
large  is  at  any  given  time  insufficient  to  meet  the 
demand,  there  will  necessarily  be  an  appreciation  in 
the  value  of  money ;  if,  on  the  other  hand,  the  sup¬ 
ply  is  in  excess  of  the  demand,  money  will  depreci¬ 
ate.  These  fluctuations  are  constantly  occurring, 
but  they  are  so  slight  as  to  be  hardly  noticeable.  In 
reviewing  a  long  period  of  time,  however,  we  find 
that  the  general  tendency  is  towards  lower  values, 
and  this  applies  not  only  to  the  precious  metals,  but 
to  all  products  of  man’s  labor.  Since  the  introduc¬ 
tion  of  steam  power,  machinery,  and  subdivision  of 
labor,  the  tendency  towards  lower  prices  has  been 
more  decided  than  before.  To  obtain  a  more 
abundant  supply  of  the  necessaries,  comforts,  and 
luxuries  of  life,  is  the  object  of  all  industry,  and  with 
the  increase  of  supply  comes  the  reduction  in  price. 
This  is  the  natural  order  of  progress, 'of  civilization. 

As  nearly  as  we  can  now  judge,  the  decline  in  value 
of  the  precious  metals  has  kept  comparatively  even 
pace  with  the  decline  in  prices  of  commodities. 
There  have  been  but  two  marked  exceptions  to  this 


Bi-metallism  and  Mono-metallism 


43 


rule,  arising  from  natural  causes ;  one  when  Euro¬ 
peans  got  possession  of  Mexico  and  Peru,  and  the 
other  when  the  gold  fields  of  California  and  Aus¬ 
tralia  were  opened.  In  the  latter  case  there  was  a 
depreciation  in  the  price  of  gold  ;  this  was  made 
evident  by  a  general  advance  in  the  price  of  com¬ 
modities,  including  silver,  all  over  the  civilized  world. 
It  was  not  until  1879  that  gold  recovered  the  value 
that  it  had  had,  as  compared  with  other  commodities, 
before  1850. 

If  England,  instead  of  demonetizing  silver  in  1816, 
had  permitted  her  silver  and  gold  coin  to  circulate 
independently,  and  if  the  other  European  nations 
had  followed  this  example,  both  metals  would  have 
circulated  freely  in  all  these  countries,  and  with  much 
slighter  fluctuations,  and  the  people  would  have  been 
perfectly  competent,  in  making  their  exchanges,  to 
adjust  them  to  the  two  monetary  standards. 

There  has  been  too  much  legislative  interference 
with  money,  and  the  best  we  can  do  now  is  to  recog¬ 
nize  this  and  act  accordingly.  In  a  country  like  ours, 
there  can  never  be  a  lack  of  efficient  money,  if  we 
observe  the  natural  law  of  money ;  our  immense 
natural  resources  and  the  industry  of  our  people 
are  a  guaranty  against  it.  We  have  now  a  super¬ 
abundance  of  money  that  does  not  properly  perform 


44 


The  Natural  Law  of  Money 


its  functions.  Gold  is  practically  our  standard,  but 
it  is  burdened  with  carrying  silver,  whereby  the 
efficiency  of  both  metals  is  reduced ;  nor  does  it 
alter  these  conditions  to  issue  silver  in  the  form  of 
paper-money.  The  silver  in  the  Treasury  vaults  is 
of  no  more  use  to  us  now  than  when  it  was  in  its 
native  hills.  Nobody  questions  the  capability  of  the 
United  States  to  redeem  any  obligation  it  may 
assume  ;  the  only  question  that  has  been  raised  in 
reference  to  our  silver  money  is,  what  is  its  value  ? 
And  this  is  a  point  upon  which  there  should  never 
be  any  room  for  doubt. 

Two  examples  have  been  given  showing  how  one 
money  may  replace  another  in  the  circulation ;  the 
first  was  the  natural  order  of  displacement,  whereby 
the  more  serviceable  money  displaces  a  less  service¬ 
able  money ;  the  second  was  the  artificial  displace¬ 
ment  that  occurs  under  bi-metallism,  when  the  cheaper 
money  drives  the  more  valuable  money  from  the  cir¬ 
culation.  It  remained  for  the  United  States  to  give 
a  third  example  of  displacement,  which,  like  the 
second,  was  artificial.  It  was  furnished  by  the  silver 
legislation  of  1878  and  1890,  by  which  there  was  in¬ 
jected  monthly  into  the  currency  a  specified  amount 
of  silver.  This  feature  of  the  legislation  was  a  mone¬ 
tary  anomaly ;  nothing  of  the  kind  had  ever  been 


Bi-metallism  and  Mono-metallism  45 


attempted  before.  It  worked  upon  what  is  called 
the  “  per  capita  ”  plan — so  many  heads,  and  so  many 
dollars  per  head.  Machinery  was  set  in  motion  to 
grind  out  a  given  number  of  dollars  per  month,  and 
the  country  was  forced  to  take  them  and  pay  for 
them,  whether  it  needed  them  or  not.  There  is  a 
limit  to  the  amount  of  money  that  any  community 
can  employ  productively  ;  therefore,  to  force  money 
into  the  circulation  after  that  limit  is  reached,  is  to 
force  other  money  out.  It  will  be  seen  that  in  this 
third  example  the  displacement  is  purely  mechani¬ 
cal,  and  without  reference  either  to  serviceableness, 
as  in  the  first  example,  or  to  value,  as  in  the  second ; 
the  money  goes  simply  because  it  is  not  needed. 

Having  thus  stated  the  three  forms  of  monetary 
displacement,  we  will  now  consider  them  somewhat 
more  specifically,  as  exemplified  by  the  operation  of 
the  acts  referred  to,  especially  that  of  1890,  com¬ 
monly  called  the  Sherman  Act.  We  have  seen  that 
while  money  may  be  mechanically  forced  into  the 
circulation,  it  cannot  be  retained  there  unless  there  is 
employment  for  it.  The  country  has  had  a  practical 
illustration  of  this  in  the  necessary  retirement  of  a 
large  volume  of  national-bank  notes,  though  these 
notes  were  practically  the  same  in  efficiency  and 
value  as  the  silver  notes  supplied  by  the  govern- 


46 


The  Natural  Law  of  Money 


ment.  Many  of  the  banks  found  a  little  more  profit 
in  redeeming  their  own  notes  and  using  the  govern¬ 
ment  notes  instead,  but  this  profit  was  not  in  itself 
sufficient  to  induce  them  to  retire  their  notes  if  there 
had  not  already  been  an  excess  in  the  volume  of  the 
currency.  That  this  was  so  is  shown  by  the  fact  that 
much  of  this  retired  money  reappeared  when  the 
volume  of  the  circulation  was  reduced  by  the  paper- 
money  hoarding  which  began  in  the  summer  of  1893. 

Though  the  national-bank  notes  were  displaced 
by  this  mechanical  enlargement  of  the  volume  of 
currency,  the  gold  money  which  retired  was  not  simi¬ 
larly  displaced  ;  nor  would  it  have  retired  from  the 
circulation  had  it  not  been  for  the  Act  of  1890,  by 
which  Congress  sought  to  give  it  a  silver  valuation 
below  its  bullion  market  value.  But  for  this  manda¬ 
tory  decree,  gold  money  would,  by  reason  of  its 
superior  efficiency,  have  remained  in  circulation  to 
the  exclusion  of  silver  money  when  the  volume  of 
currency  was  in  excess  of  the  needs.  The  silver 
dollar  has  continued  to  pass  at  a  parity  with  the  gold 
dollar,  but  this  has  been  the  case  only  because  it 
could  be  exchanged  at  the  United  States  Treasury 
for  a  gold  dollar.  It  was  therefore  not  a  difference 
in  the  current  value  of  the  two  coins  that  caused  the 
retirement  of  the  gold  money,  but  a  fear  in  the 


Bi-metallism  and  Mono-metallism  47 


public  mind  that  the  Treasury  might  at  some  time 
cease  to  redeem  its  silver  money  with  gold.  Nor 
was  this  fear  by  any  means  groundless.  The  Act  of 
July  14,  1890,  does  indeed  declare  it  as  being  “the 
established  policy  of  the  United  States  to  maintain 
the  two  metals  on  a  parity  with  each  other,”  but  this 
declaration  is  not  sustained  by  the  action  of  our  gov¬ 
ernment  in  the  past,  nor  is  it  consistent  with  the  spirit 
and  letter  of  other  portions  of  the  act  itself. 

Bi-metallism  has  been  the  monetary  policy  of  the 
United  States  from  the  beginning  of  the  government, 
except  for  five  years — from  1873  to  ^78 — during 
which  time  there  was  no  metallic  money  in  the  circu¬ 
lation.  At  all  other  times,  down  to  1878,  when  the 
money  of  the  country  was  on  a  metallic  basis,  it  has 
been  the  policy  of  the  government  to  let  the  two 
metals  take  their  natural  course,  and  this  has  in¬ 
variably  resulted  in  excluding  from  circulation  the 
coin  of  higher  bullion  market  value.  The  reason 
for  this  will  be  obvious  when  we  reflect  that,  if  in  a 
transaction  of  trade  the  seller  may  exercise  his  choice, 
he  will  naturally  demand  the  most  valuable  money 
obtainable,  but  if  he  must  accept  the  money  that  is 
tendered  to  him,  the  buyer  will  pay  him  in  that 
which  has  the  least  value.  It  is  through  such  action 
by  individuals,  each  prompted  by  his  own  interest. 


48 


The  Natural  Law  of  Money 


that  bi-metallism  operates  to  retain  in  the  circulation 
the  money  of  least  value  and  to  expel  from  it  that 
of  any  higher  value. 

Nor  can  it  be  said  to  have  been  the  policy  of  the 
government  since  1878  to  maintain  the  two  metals 
at  a  parity,  if  we  are  to  judge  of  that  policy  by  the 
acts  of  Congress,  and  not  by  the  practice  of  the 
Treasury  department.  The  Act  of  February  28,  1878, 
commonly  called  the  Bland  Act,  made  no  provision 
for  maintaining  the  two  metals  at  a  parity  ;  it  simply 
authorized  the  injectment  of  silver  money  into  the 
currency,  and  decreed  that  the  silver  dollar  should 
be  a  legal  tender  at  its  nominal  value.  There  is 
really  no  act  of  Congress  which  definitely  commits 
the  nation  to  maintaining  the  two  metals  at  a  parity, 
and  it  is  the  fact  that  the  nation  is  not  thus  definitely 
committed  that  discredits  our  money.  By  making 
the  two  metals  a  legal  tender  at  a  fixed  ratio,  and 
thereafter  abstaining  from  interference  with  the  coin 
in  circulation,  which  was  the  policy  of  our  govern¬ 
ment  down  to  1878,  the  metal  of  higher  value  was 
expelled  from  the  circulation,  leaving  the  other 
metal  to  constitute  the  monetary  standard.  By  thus 
permitting  the  metals  to  take  their  natural  course, 
the  United  States,  when  on  a  metallic  basis,  had 
always  had,  down  to  1878,  a  definite  and  stable 


Bi-metallism  and  Mono-metallism  49 


money  ;  in  other  words,  the  United  States  has  theo¬ 
retically  had  bi-metallism,  but  practically  mono¬ 
metallism. 

Since  1878,  we  have  had  bi-metallism  in  its  most 
objectionable  form,  by  reason  of  the  effort  made 
to  force,  by  legislative  decree,  the  circulation  of 
the  two  metals  at  their  nominal  values,  irrespective 
of  their  actual  bullion  values.  This  is  what  the 
Act  of  1890  assumes  to  do  in  authorizing  the  Secre¬ 
tary  of  the  Treasury  to  pay  “  in  gold  or  silver  coin 
at  his  discretion ,”  since  to  maintain  the  two  metals 
at  their  legal  parity,  it  is  absolutely  necessary  that 
the  choice  of  the  metal  to  be  received  shall  rest  with 
the  recipient.  This  fundamental  principle  is  now  so 
generally  understood  and  accepted  that  no  intelli¬ 
gent  person  can  be  misled  by  an  act  which  in  one 
clause  declares  for  the  maintenance  of  “  the  two 
metals  on  a  parity  with  each  other,”  and  in  another 
authorizes  the  Secretary  of  the  Treasury  to  pay  in 
either  metal  at  his  discretion.  In  the  exercise  of 
this  discretionary  power  the  Secretaries  have  uni¬ 
formly  left  the  choice  of  the  metals  to  the  person 
receiving  the  money,  and  it  is  solely  through  this 
recognition  of  a  monetary  principle  in  their  gover¬ 
nance  of  the  Treasury  Department  that  the  legal 
parity  of  the  two  metals  has  been  maintained. 


50 


The  Natural  Law  of  Money 


Congress  can  render  no  greater  service  to  the  na¬ 
tion  than  by  substantiating  its  declared  policy  under 
a  definite  pledge  to  make  the  gold  and  silver  money 
of  the  United  States  interchangeable  at  the  Treasury 
at  the  option  of  the  holder ;  nothing  it  can  do  would 
so  quickly  restore  confidence  and  bring  relief  to  an 
overburdened  people.  The  repeal  of  the  silver-pur- 
chase  clause  of  the  Act  of  1890  was  necessary  and 
commendable  ;  it  relieved  the  country  from  a  bur¬ 
densome  tax,  but  with  our  large  volume  of  silver 
money,  the  remaining  clauses  of  that  act  must  con¬ 
tinue  to  menace  our  credit  so  long  as  the  nation  is 
not  definitely  committed  to  redeem  its  silver  money 
with  gold. 

We  have  now  little  cause  to  fear  that  the  gold 
standard  will  not  be  maintained  :  in  the  agitation 
and  discussion  of  the  silver  question,  the  people  have 
come  to  realize  the  injustice  that  would  be  wrought 
by  permitting  the  standard  to  drop  from  gold  to 
silver,  and  on  this  moral  ground,  if  not  from  the 
convincing  force  of  economic  logic,  they  will  insist 
upon  the  maintenance  of  the  gold  standard.  While 
we  may  ourselves  be  entirely  confident  that  our  gov¬ 
ernment  will  honestly  live  up  to  its  monetary  profes¬ 
sions,  it  is  particularly  unfortunate  that  any  occasion 
should  be  given  to  other  nations  to  question  our  good 


Bi-metallism  and  Mono-metallism  51 


faith,  and  so  long  as  the  Act  of  1890  remains  in  its 
present  equivocal  form,  we  cannot  logically  expect 
to  secure  or  to  retain  foreign  confidence  ;  but  with  a 
definite  commitment  of  the  nation  to  preserve  the 
integrity  of  its  monetary  standard,  all  cause  for  dis¬ 
trust  would  be  removed.  We  might  then  look  for¬ 
ward  with  reasonable  assurance  to  a  return  of  the 
foreign  capital  that  has  been,  withdrawn  from  us,  the 
loss  of  which  is  the  chief  cause  of  our  industrial 
depression. 

It  is  not  money,  but  wise  monetary  legislation, 
that  the  country  now  needs.  There  has  been 
no  time  in  the  past  two  years,  except  during  the 
few  weeks  when  the  “  paper-money  hoarding  ”  craze 
prevailed,  that  the  money  in  circulation,  though 
wofully  defective  in  quality,  was  not  amply  sufficient 
in  volume  for  all  demands ;  and  if  we  include  the 
hoarded  gold  money  in  the  country,  the  volume 
has  been  greatly  in  excess  of  what  could  be  profit¬ 
ably  employed  under  normal  conditions.  It  is 
admitted  on  all  sides  that  a  revision  of  our  monetary 
system  has  become  absolutely  necessary ;  but  no 
revision  can  be  of  any  service  that  does  not  re-estab¬ 
lish  public  confidence  in  our  money. 

Before  proceeding  to  illustrate  the  beginning 
and  growth  of  paper-money,  it  may  be  well  to  con- 


52 


The  Natural  Law  of  Money 


sider  briefly  some  of  the  salient  evils  that  would 
result,  in  the  event  of  a  fall  in  our  monetary  standard 
from  the  gold  to  a  silver  basis.  If  such  a  change  of 
standard  were  made  with  due  consideration,  the 
government  providing  for  the  redemption  in  gold  of 
the  silver  money  it  had  issued  at  a  gold  valuation, 
and  replacing  it  with  silver  money  issued  at  its  actual 
valuation,  and  also  requiring  that  all  contracts  and 
obligations  entered  into  during  the  continuance  of 
the  gold  standard  should  be  settled  on  that  basis, 
the  disturbance  to  industry  would  be  only  such  as 
must  arise  from  the  adjustment  of  values  to  the  new 
standard,  and  business  would  soon  move  along  much 
the  same  as  if  on  a  gold  basis.  Though  our  mone¬ 
tary  standard  would  not  be  improved,  no  one  could 
then  justly  charge  us  with  duplicity  or  bad  faith; 
but  to  let  the  standard  drop  from  gold  to  silver 
without  making  full  provision  for  the  change,  would 
be  criminal  neglect. 

All  metallic  money  should  have  a  market  value  as 
bullion  equal  to  its  current  value  as  coin ;  if  it  has 
not  this,  it  is  not  true  money,  nor  can  it  be  the  most 
serviceable  money.  As  our  gold  coin  is  worth  as 
much  in  bullion  as  in  coin,  it  answers  to  this  test ; 
but  our  silver  coin,  if  converted  into  bullion,  would 
yield  only  three-fifths  of  its  current  value,  which 


Bi-metallism  and  Mono-metallism  53 


current  value,  as  we  have  seen,  is  maintained  only 
because  a  silver  dollar  can  be  exchanged  for  a  gold 
dollar  at  the  United  States  Treasury. 

The  bi-metallic  ratio  of  the  United  States  is  sixteen 
grains  of  silver  to  one  of  gold.  When  this  ratio  was 
adopted  it  corresponded  very  nearly  to  the  relative 
market  values  of  the  two  metals ;  at  present,  however, 
one  grain  of  gold  will  buy  about  twenty-seven  grains 
of  silver,  which  makes  the  bullion  value  of  our  silver 
dollar  about  sixty  cents.1  If,  for  example,  we  should 
melt  five  silver  dollars  and  three  gold  dollars  sepa¬ 
rately  into  bullion,  the  present  market  value  of  these 
two  bits  of  bullion  would  be  the  same,  and  we  should 
find  this  to  be  the  case  wherever  sold. 

As  gold  has  been  the  standard  in  the  United 
States  since  January,  1879,  every  dollar  of  silver 
money  in  the  country,  whether  it  be  in  coin  or 
paper,  has  cost  its  owner  a  gold  dollar,  or  the 
equivalent  of  a  gold  dollar ;  therefore  a  drop  in 
the  monetary  standard  to  a  silver  basis  would 
cause  these  owners  to  lose  forty  per  cent,  of  their 
money.  A  person  with  five  dollars  of  silver  money 
in  his  pocket  would  lose  two  dollars  ;  he  would 
still  have  five  dollars  nominally,  but  actually  only 
three,  as  the  purchasing  power  of  the  five  would 

1  This  valuation  is  used  throughout,  to  preserve  uniformity  in  the 
calculations,  though  in  Nov.  1893,  when  this  was  written,  silver  was 
worth  less. 


54 


The  Natural  Law  of  Money 


have  shrunk  to  that  of  three.  It  might  seem  to  him 
when  he  came  to  spend  his  five  dollars  that  prices 
had  advanced,  but  what  would  really  have  taken 
place  would  be  a  reduction  in  the  value  of  his  money 
while  it  lay  in  his  pocket.  Commodities,  and  prop¬ 
erty  in  general,  would  not  be  affected  in  value  by 
the  change  in  the  value  of  the  money,  as  would  be 
evident  to  those  who  had  gold  money  to  spend.  In 
the  adjustment  of  values  to  the  depreciated  mone¬ 
tary  standard,  the  advance  in  prices  would  disturb 
for  a  time  the  prevailing  idea  of  relative  values ;  but 
these  changes  in  prices  would  be  nominal  ;  values 
would  remain  as  they  were,  subject  only  to  natural 
fluctuations. 

In  the  derangement  of  prices  that  would  follow  a 
sudden  change  of  the  monetary  standard,  large 
numbers  of  persons,  not  foreseeing  the  effect  of  the 
change,  would  be  likely  in  trading  to  underestimate 
the  value  of  their  property  in  the  new  and  cheaper 
money,  and  thus  they  would  sustain  the  full  loss  result¬ 
ing  from  buying  with  gold  and  selling  for  silver.  The 
better  knowledge  of  monetary  conditions  possessed 
by  the  few,  and  their  larger  opportunities  for  turning 
this  knowledge  to  pecuniary  advantage,  would  enable 
them  not  only  to  protect  themselves,  but  to  profit 
by  the  ignorance  or  the  limitations  of  their  neigh- 


Bi-metallism  and  Mono-metallism  55 


bors ;  and  thus  much  of  the  wealth  of  the  country 
would  be  aggregated  in  fewer  hands.  But  as  values 
of  property  in  general  would  not  be  affected  by  the 
depreciation  in  the  value  of  the  money,  the  direct 
and  immediate  loss  would  inevitably  fall  upon  the 
owners  of  money,  of  bank-deposits,  and  of  such 
assets  as  were  payable  in  money.  This  loss  would 
fall  mainly  upon  that  great  body  of  frugal  and  in¬ 
dustrious  working  people  that  composes  more  than 
half  the  population  of  the  United  States,  as  the 
savings  of  these  people  are  generally  held  in  bank 
deposits.  A  large  majority  of  them  would  not 
understand  the  situation,  and  even  if  they  did,  it 
would  not  be  in  the  power  of  any  considerable  num¬ 
ber  of  them  to  protect  themselves. 

The  number  of  small  depositors  in  the  United 
States  cannot  be  less  than  eight  millions ;  in  a  general 
liquidation,  these  depositors  would  be  found  to  be  the 
principal  owners  of  the  money  that  constitutes  our 
medium  of  exchange.  As  their  savings  are  usually 
left  quietly  and  permanently  on  deposit,  this  money 
becomes,  through  the  intricacies  of  exchanges  in  the 
ordinary  course  of  business,  the  active  lendable  money 
of  the  nation.  The  sum  of  deposits  in  savings  banks 
alone  is  $1,712,769,026.00,  and  the  number  of  de¬ 
positors  is  4,781,605,  making  an  average  of  $358.20  to 


56 


The  Natural  Law  of  Money 


each  depositor.  As,  however,  but  a  small  percentage  of 
the  money  deposited  in  savings  banks  is  allowed  to  lie 
idle,  this  money  goes  immediately  back  into  circula¬ 
tion  ;  even  the  bulk  of  the  reserve  money  of  savings 
banks  is  held  on  deposit  in  commercial  banks,  which 
are  the  active  distributors  of  money. 

If  the  government  should  cease  to  redeem  its 
silver  money  in  gold,  about  a  thousand  million  dol¬ 
lars  of  the  circulating  medium  of  the  nation  would 
drop  to  the  silver  basis  ;  but  in  order  to  ascertain 
the  full  percentage  of  individual  loss  on  the  de¬ 
preciated  money,  we  must  take  the  total  sum  on 
deposit  in  the  United  States,  and  add  to  it  the 
money  in  current  use,  as  follows  : 

In  commercial  banks  .  .  .  $2,967,248,529  00 

In  savings  banks  ....  1,712,769,026  00 

In  current  use  (estimated)  .  500,000,000  00 

$5,180,017,555  00 

Here  we  have  a  sum  exceeding  five  thousand 
million  dollars,  upon  which  there  would  be  a  direct 
loss  of  forty  per  cent.,  or  say  two  thousand  million 
dollars. 

While  the  change  of  monetary  standard  would 
not  lessen  the  volume  of  actual  capital  in  the 
country,  the  loss  to  individuals  would  be  as  abso- 


\ 


Bi-metallism  and  Mono-metallism  57 


lute  as  if  their  property  had  been  annihilated 
by  fire ;  and  nothing  can  be  plainer  than  that  the 
great  burden  of  this  vast  loss  would  have  to  be 
sustained  by  the  working  people  who  had  laid  up  a 
little  money  in  bank  for  safe-keeping,  and  for  the 
interest  it  would  bring  them.  There  would  be  no 
levelling  of  fortunes,  as  is  vaguely  supposed  by  some 
people,  but  only  an  increased  disparity.  Trades¬ 
people,  merchants,  manufacturers,  and  the  great 
industrial  corporations,  have  their  capital  invested  in 
goods  and  merchandise,  in  land,  factories,  and  in  the 
products  of  factories :  the  value  of  all  these  would 
be  adjusted  to  the  new  standard  without  loss,  and  as 
these  industries  are  mainly  carried  on  with  borrowed 
money,  the  loss  from  its  depreciation  would  not  fall 
upon  them.  Nor  would  the  banks  that  are  the 
lenders  of  money  be  the  losers,  for  nearly  all  the 
money  lent  by  them  belongs  to  their  depositors ; 
banks  would  therefore  in  a  large  measure  be  able  to 
protect  their  stock-holders  by  keeping  their  reserve 
money  in  gold. 

A  glance  at  the  weekly  statements  of  the  National 
Banks  of  the  City  of  New  York  will  show  that  the 
gold  held  in  reserve  by  them  is  really  in  excess  of 
their  total  capital. 


CHAPTER  III. 

PAPER-MONEY  AND  BANKING. 

WE  have  seen  that  the  improvement  in  money 
as  a  medium  of  exchange  began  with  the 
substitution  of  one  commodity  for  another,  because 
the  incoming  commodity  was  better  adapted  for  the 
service  required  than  the  outgoing,  and  we  have  seen 
that  silver  and  gold,  having  gradually  established 
their  superiority  over  all  other  commodities,  became 
the  only  money  of  the  civilized  world.  Since  the 
adoption  of  these  two  metals,  the  improvement  of 
money  through  displacement  has  proceeded  very 
slowly.  Silver  being  more  plentiful  than  gold,  and 
better  adapted  to  the  limited  trade  of  early  times, 
was  the  predominant  money  for  many  ages ;  but  as 
trade  developed  into  commerce,  gold  came  more  and 
more  into  use,  and  is  now  the  chief  money  of  all  the 
more  advanced  commercial  nations,  while  silver  con¬ 
tinues  to  be  the  chief  money  of  nations  second  in 

53 


Paper-Money  and  Banking 


59 


advancement.  This  condition  is  in  strict  accord 
with  the  general  march  of  development. 

In  the  larger  and  more  complex  transactions  of 
modern  traffic,  gold  has  two  qualifications  that  render 
it  superior  to  silver  ;  these  are,  that  very  much  less  of 
gold  than  silver,  in  bulk  and  weight,  is  required  to 
perform  a  given  service,  and  that  gold  has  more  sta¬ 
bility  than  silver  and  is  therefore  a  more  trustworthy 
measure  of  values. 

Thus  far,  it  may  be  noted  that  all  the  improve¬ 
ment  in  metallic  money  coming  through  natural 
displacement,  seems  to  culminate  in  the  su¬ 
premacy  of  gold  ;  but  while  this  inference  is 
probably  correct,  it  is  certain  that  improvement  of 
money  generally  will  not  cease  so  long  as  trade 
and  commerce  continue.  He  deceives  himself  who 
believes  that  such  constant  improvement  as  we  see 
around  us,  in  all  the  implements  and  appliances 
of  every  department  of  industry,  could  be  possible 
if  the  one  instrumentality  upon  which  all  such  ad¬ 
vancement  depends,  and  without  which  it  would 
stop,  had  remained  stationary.  We  may  rest  as¬ 
sured  that  money  has  continually  improved  in  effi¬ 
ciency,  except  in  places  and  at  times  when  the 
industrial  organism  of  society  was  disordered  by 
warfare,  or  when  arbitrary  rulers  interfered  with  the 


6o 


The  Natural  Law  of  Money 


natural  order  of  progression.  This  view  is  supported 
by  the  testimony  of  history. 

While  the  question  as  to  the  superior  serviceable¬ 
ness  of  silver  or  of  gold  was  still  unsettled,  forces  of 
a  more  subtle  character  than  those  that  had  pro¬ 
duced  displacement,  came  into  play  to  augment 
indefinitely  the  monetary  efficiency  of  these  metals  ; 
these,  in  brief,  were  intelligence  and  integrity.  It 
may  not  be  obvious  at  first  sight  that  a  people’s 
sense  of  what  constitutes  fair-dealing  has  anything 
to  do  with  the  amount  of  metallic  money  needed  by 
them  to  conduct  their  business,  but  we  shall  see  as 
we  extend  our  inquiry  that  as  man  rises  in  the  moral 
scale  he  requires  relatively  less  and  less  of  the  money- 
metals.  Nothing  more  truly  shows  the  degree  of 
civilization  attained  by  a  people  than  their  estimate 
of  what  constitutes  right  and  wrong ;  it  is  upon  this 
sense  that  credit  must  rest,  and  it  is  to  credit  that  we 
must  look  for  the  further  growth  and  efficiency  of 
money. 

Let  us  now  see  how  this  new  element  of  credit  be¬ 
came  not  only  an  Indi-spensable  quality  of  money, 
but  the  only  quality  by  which  its  efficiency  could 
be  enhanced  when  improvement  by  natural  displace¬ 
ment  ceased.  Take,  for  example,  a  community  ar¬ 
rived  at  the  silver  and  gold  stage  of  monetary 


Paper-Money  and  Banking 


6 1 


advancement,  but  still  hoarding  all  its  idle  money  or 
hiding  it  in  the  ground  for  safe-keeping.  This  money 
would  be  used  only  by  the  owners  of  it,  and  as  every 
transaction  in  trade  would  require  a  sum  equal  in 
value  to  the  commodity  exchanged,  the  volume  of 
money  employed,  as  compared  with  the  volume  of 
transactions,  would  be  at  its  maximum.  From  this 
stage,  improvement  would  progress  when  the  owners 
of  idle  money  lent  it  to  those  who  would  put  it  to 
use.  This  would  be  the  beginning  of  credit ,  and  the 
consideration  paid  by  the  borrower  would  be  the 
beginning  of  interest.  Thus,  by  the  introduction 
of  credit — by  lending  instead  of  hoarding — the 
same  money  would  be  made  to  repeat  its  ser¬ 
vice  indefinitely ;  the  presence  of  the  precious 
metals  would  still  be  required  in  every  transaction, 
but  by  turning  the  money  oftener,  the  volume 
of  money  employed,  as  compared  with  the  vol¬ 
ume  of  transactions,  would  be  lessened,  and  the  cost 
of  maintaining  the  medium  of  exchange  would  there¬ 
by  be  cheapened.  To  continue  to  hoard  money  and 
to  supply  the  demands  of  growing  trade  by  increas¬ 
ing  the  stock  of  precious  metals,  would  not  be 
monetary  advancement ;  the  burdens  of  trade  would 
not  be  lightened  in  the  least,  and  there  would  come 
a  time  when  this  slow  and  labored  growth  would  be 


62 


The  Natural  Law  of  Money 


arrested  by  the  mere  physical  inability  of  the  people 
to  handle  the  metals. 

At  this  stage  of  development,  it  is  only  by  the 
cultivation  of  intelligence  and  integrity  that  any 
monetary  advance  can  be  made ;  in  trading  with 
one  another,  men  are  impelled,  by  the  incentive 
of  profit,  to  exercise  these  higher  qualities  of  their 
natures.  Through  trade  they  are  brought  into 
closer  relationship,  and  the  distrust  that  led  them 
to  hoard  their  money,  is  gradually  changed  into 
confidence  by  the  amenities  of  commercial  inter¬ 
course.  With  the  lending  and  borrowing  of  money 
fairly  established,  there  would  soon  arise  the  need 
of  a  middle-man  to  promote  and  facilitate  these 
transactions  ;  and  the  need  would  develop  the  banker . 
A  competent,  responsible,  trustworthy  person,  hav¬ 
ing  the  confidence  of  the  community,  would  find  his 
services  in  demand  ;  he  would  become  the  depositary 
of  lendable  money  ;  practically,  he  would  himself 
become  the  borrower  from  those  who  wished  to  lend, 
and  the  lender  to  those  who  wished  to  borrow.  His 
profit  would  be  derived  from  charging  a  higher  rate 
of  interest  than  he  paid ;  when  metallic  money  was 
deposited  with  him,  he  would  give  his  receipt  for  it, 
and  as  he  possessed  the  public  confidence,  his  receipt 
would  pass  from  hand  to  hand,  performing  the  func- 


Paper-Money  and  Banking 


63 


tion  of  money  with  greater  ease  than  could  the  metal 
itself.  Here  we  have  a  second  refinement  of  money 
through  the  agency  of  credit — the  banker’s  receipt, 
as  the  beginning  of  paper-money. 

It  will  be  seen,  and  should  be  noted  here,  that 
the  banker  is  himself  an  essential  factor  in  the 
refinement  of  money  through  the  agency  of  credit ; 
to  illustrate  his  importance  in  this  respect,  we  will 
trace  this  development  one  step  further  before 
proceeding  to  consider  paper-money.  We  may 
suppose  that,  through  the  stimulus  to  interchange 
developed  by  more  efficient  money,  the  trade  of 
the  community  has  so  far  increased  as  to  require  the 
services  of  several  bankers  to  transact  the  business ; 
and  that  when  metallic  money,  receipted  for  by 
one  banker,  is  lent  by  him,  the  borrower  deposits  it 
with  another  banker,  who  also  gives  his  receipt  for 
it,  thus  furnishing  two  receipts  which  circulate  as, 
and  perform  the  function  of,  money,  though  repre¬ 
senting  one  and  the  same  metallic  base.  Here  we 
have  a  third  refinement  in  the  growth  of  money 
through  the  agency  of  credit. 

In  thus  tracing  the  growth  of  money  from 
improvement  by  natural  displacement  to  improve¬ 
ment  by  credit,  it  has  been  with  a  view  to  greater 
brevity  and  a  clearer  outlining  of  principles  that  we 


64 


The  Natural  Law  of  Money 


have  illustrated  the  process  by  a  concrete  example ; 
but  the  delineation  is  drawn  from  actual  history. 
Credit,  as  a  factor  in  monetary  improvement,  opened 
a  new  era  of  industrial  growth,  which  may  be  classi¬ 
fied  as  only  second  in  importance  to  the  adoption 
of  a  medium  of  exchange. 

History  records  that  the  goldsmiths  of  London 
were  the  first  bankers  and  the  first  issuers  of  paper, 
money  in  that  city. 

The  superiority  of  paper-money  over  metallic 
money  consists :  first,  in  its  cheapness ;  second,  in 
the  readiness  with  which  its  volume  may  be  expanded 
or  contracted  ;  and  third,  in  the  ease  with  which  it 
may  be  handled  and  transferred.  Beyond  these 
three  important  qualifications,  it  has  no  monetary 
function  that  is  not  derived  from  the  commodity 
in  which  it  is  redeemable.  It  may  be  issued  against 
any  property  that  has  the  qualifications  to  serve 
as  a  medium  of  exchange,  but  if  the  thing  selected 
is  deficient  in  any  of  the  essential  qualifications 
of  money,  the  paper-money  will  be  similarly  de¬ 
ficient.  For  example,  paper-money  cannot  be  issued 
against  land,  for  land  itself  has  no  adaptability  for 
use  as  money.  Mortgages  on  real  estate,  govern¬ 
ment,  state,  or  railroad  bonds,  cannot  perform  the 
service  of  money,  and  therefore  are  unfitted  to  be 
a  basis  for  paper-money. 


Paper-Money  and  Banking 


65 


As  paper-money  is  but  a  “  promise  to  pay  on  de¬ 
mand,”  the  thing  in  which  it  is  payable  must  itself 
have  all  the  essential  qualifications  of  money,  and 
these  qualifications,  as  we  have  seen,  are  possessed 
in  the  highest  degree  by  silver  and  gold.  It  is  these 
metals  that  perform  all  the  essential  duties  of  money  ; 
but  by  the  introduction  of  paper,  simply  as  their 
representative,  the  volume  of  money  is  increased  and 
its  efficiency  enhanced. 

To  have  a  paper-money  of  high  efficiency,  two 
conditions  are  essential :  it  must  rest  upon  its  only 
true  basis — the  precious  metals,  and  it  must  be 
bank,  and  not  government,  paper-money. 

We  saw  that  when  our  banker  lent  a  portion  of 
his  metallic  money,  against  which  notes  had  been 
issued,  it  went  to  another  banker,  who  also  issued 
notes  against  it ;  but  the  fact  must  now  be  noted 
that  when  our  banker  lent  the  money,  he  received 
from  the  borrower  an  equivalent  in  value  as  security 
for  its  safe  return  ;  consequently,  although  these 
notes  exceeded  in  amount  the  metallic  money 
against  which  they  were  issued,  the  security  held 
fully  insured  their  redemption.  In  the  regular 
order  of  banking  this  is  what  always  takes  place ; 
no  paper-money  issued  by  a  bank  ever  finds  its  way 
into  circulation  until  there  is  an  equivalent  in  value 
deposited  somewhere  to  secure  its  redemption. 


66 


The  Natural  Law  of  Money 


The  banker  who  issues  paper-money  is  its  natural 
guardian  ;  it  is  he  who,  impelled  by  the  incentive 
of  profit,  assumes  all  the  responsibility  of  its  prompt 
redemption  when  presented  for  payment  ;  his  prop¬ 
erty  and  his  integrity  are  pledged  to  its  redemption  ; 
why  then  should  the  state  interpose  to  relieve  him 
from  the  responsibility  of  his  own  act  ?  Such  inter¬ 
ference  can  have  no  other  effect  than  to  lower  the 
standard  of  banking  integrity.  The  banker  is  the 
one  man  especially  competent  to  judge  of  the  char¬ 
acter  of  the  security  that  shall  protect  his  notes 
while  in  circulation,  and  his  interest  lies  in  protect¬ 
ing  them. 

Bond-security  as  a  basis  for  bank-notes  is  another 
example  of  false  theory  in  our  monetary  legisla¬ 
tion  ;  but  the  public  mind  has  unfortunately  be¬ 
come  charged  with  the  belief  that  such  security 
is  essential  to  a  sound  circulating  medium,  though 
no  phase  of  the  theory  can  be  presented  that  will 
stand  intelligent  scrutiny.  A  bank  is  a  dealer  in 
money  only ;  if  it  should  permit  all  its  money  to  go 
into  long-time  securities,  its  banking  capabilities 
would  be  exhausted ;  if  it  is  obliged  to  invest  a  por¬ 
tion  of  its  capital  in  this  way  to  secure  its  note-issue, 
its  ability  to  serve  its  customers  is  crippled  to  that 
extent. 


Paper-Money  and  Banking 


67 


One  important  function  of  a  bank  is  to  gather  up 
the  idle  money  of  its  neighborhood  and  to  keep  it 
in  active  employment,  and  this  is  a  bank’s  main 
source  of  profit.  Exclusive  of  savings-banks  de¬ 
posits,  the  amount  of  money  thus  gathered  and 
kept  actively  at  work  in  the  United  States  is  almost 
three  times  as  great  as  the  total  sum  of  the  capital  in¬ 
vested  in  the  banking  business.  This  money  is  gener¬ 
ally  subject  to  immediate  call;  a  bank  must  be  ready 
to  pay  the  checks  of  its  depositors  whenever  they  are 
presented.  It  finds,  however,  that  on  the  principle 
of  general  averages,  it  can  lend  the  greater  part  of 
the  money,  and  still  meet  all  demands  upon  it ;  but 
in  order  to  do  so,  it  can  lend  on  short  time  only, 
and  it  must  have  the  right,  if  a  loan  be  not  paid  when 
it  becomes  due,  to  sell  the  pledged  securities  of  the 
defaulting  debtor  at  his  risk.  These  conditions  may 
seem  hard,  but  they  are  not  of  the  banker’s  making 
— they  are  inherent  in  the  business ;  a  banker  is  of 
all  men  the  least  of  a  monopolist ;  he  is  much  more 
the  servant  of  his  customers  than  their  master. 
Indeed,  banking  is  in  a  special  sense  a  public  busi¬ 
ness  ;  a  bank  may  be  owned  by  only  a  few  indivi¬ 
duals,  but  the  community  where  it  is  located  has  the 
larger  interest  in  it,  and  the  larger  power  over  it  as 
well.  Most  occupations  may  be  conducted  inde- 


68 


The  Natural  Law  of  Money 


pendently  of  each  other,  but  this  one  is  linked  to  all 
of  them,  and  its  prosperity  is  dependent  upon  their 
prosperity  ;  it  is  bound  to  them  by  ties  of  mutual 
interest. 

When  improvement  in  money  through  displace¬ 
ment  ceased  to  meet  the  requirements  of  trade,  the 
banker  and  his  paper-money  became  a  necessity  ; 
the  distrust  which  called  for  metallic  money  in  every 
transaction  had  to  give  place  to  confidence,  or  trade 
could  grow  no  faster  than  the  volume  of  the  precious 
metals  increased.  It  is  the  confidence  reposed  in 
the  banker  that  has  created  and  that  sustains  his 
occupation  ;  for  a  bank  cannot  exist  in  an  atmos¬ 
phere  of  distrust.  Through  credit  the  banker  gathers 
up  idle  money  and  keeps  it  employed  ;  through 
credit  he  issues  his  paper-money,  which  enables  him 
to  expand  and  contract  the  volume  of  money  to  meet 
the  actual  requirements  of  trade,  and  while  profit  is 
his  prime  incentive,  his  interest  is  also  entirely  in 
accord  with  legitimate  trade  and  industry.  It  is  to 
his  intelligence  and  integrity  that  the  world  is  in¬ 
debted  for  the  enhanced  efficiency  of  money  beyond 
the  mere  subdivision  of  the  precious  metals.  But  as 
the  chief  function  of  the  banker  in  the  industrial 
world  is  to  facilitate  exchanges,  he  does  not  fail  to 
use  such  methods  as  tend  to  accomplish  this  with 


Paper-Money  and  Banking 


69 


the  greatest  safety,  in  the  shortest  time,  and  with 
the  least  labor.  Beginning  with  paper-money,  he 
next  introduces  checks,  every  one  of  which  effects  an 
exchange  more  safely  and  speedily  than  any  kind  of 
money  can  ;  more  recently  he  has  originated  the  clear¬ 
ing-house,  which  is  another  step  in  the  same  direction. 

In  the  city  of  New  York  the  daily  transactions  in 
trade  are  numbered  by  the  millions,  and  ninety-four 
banks  are  required  to  make  the  exchanges.  At  the 
clearing-house  on  every  business  day  these  banks 
are  represented  by  their  accountants,  and  ninety-five 
per  cent,  of  the  business  transactions  of  the  previous 
day  are  settled,  entirely  by  the  exchange  of  checks 
and  balancing  of  accounts,  no  other  medium  being 
used ;  this  clearing  is  accomplished  in  about  an 
hour’s  time,  the  volume  of  business  thus  settled  each 
day  averaging  one  hundred  and  twelve  million  dol¬ 
lars.1  The  remaining  five  per  cent,  is  settled  with 
money,  but  it  is  mainly  paper-money,  coin  being 
called  for  only  when  it  is  actually  needed. 

In  estimating  the  growth  of  money  in  the  world, 
it  is  impossible  to  ignore  the  services  of  the  banker, 
for  it  is  through  his  instrumentality  that  metallic 
money  has  been  made  to  meet  every  legitimate  de¬ 
mand  upon  it ;  the  industrial  progress  of  the  English- 

1  These  figures  give  the  average  daily  clearings  for  the  year  1892. 


7° 


The  Natural  Law  of  Money 


speaking  people  for  the  past  two  hundred  years  has 
been  largely  dependent  upon  the  banker’s  methods 
of  monetary  refinement.  The  mere  recital  of  these 
methods  should  be  sufficient  to  satisfy  us  that. un¬ 
less  the  banker  is  unduly  restricted  by  legislative 
enactments,  industry  can  never  again  languish  for 
want  of  the  means  to  effect  exchanges.  It  may 
safely  be  said  that  the  volume  of  business  transac¬ 
tions  throughout  the  world,  now  settled  economi¬ 
cally,  securely,  and  speedily,  through  the  agency  of 
paper-money,  checks,  bills  of  exchange,  banks,  and 
clearing-houses,  infinitely  exceeds  any  volume  that 
could  be  settled  with  metallic  money  alone,  even  if 
the  earth  were  emptied  of  its  precious  metals  and 
every  ounce  of  them  converted  into  coin.  It  would 
simply  be  a  physical  impossibility  to  transact  this 
enormous  business  with  the  metals  alone. 

That  the  existing  monetary  methods,  adopted  by 
the  banker  are  the  result  of  natural  development  is 
so  obvious  that  the  only  wonder  is  that  any  intelligent 
person  can  be  found  to  question  it.  Every  step  of 
this  development  lessens  the  volume  of  precious 
metals  needed  to  transact  a  given  amount  of  business  ; 
yet  we  must  not  infer  from  this  that  they  can  be  dis¬ 
pensed  with  altogether ;  indeed,  the  need  of  them 
seems  to  be  increased  by  the  magnitude  of  the  work 


Paper-Money  and  Banking 


7 1 


they  are  made  to  perform.  They  are  the  standard 
of  measurement  in  every  transaction  as  much  now 
as  when  they  were  the  only  money  in  use,  and  the 
mechanism  whereby  their  usefulness  has  been  so 
greatly  enhanced  revolves  wholly  upon  the  degree 
of  certainty  with  which  they  can  be  had  when 
actually  needed  and  called  for;  it  is  thus  that,  by 
the  logic  of  events,  monetary  growth  has  come  to 
be  dependent  upon  individual  honesty.  As  metallic 
money  is  but  a  medium  of  exchange,  every  instru¬ 
mentality  whereby  its  work  is  accomplished  becomes 
money  in  the  larger  sense,  and  as  all  these  instru¬ 
mentalities  are  bound  by  the  inexorable  law  of 
equity,  the  only  terms  upon  which  industrial  prog- 
ress  can  be  made,  are  exact  dealing  and  strict 
adherence  to  the  word  of  promise.  Paper-money, 
the  bank,  the  check,  the  bill  of  exchange,  the  clear¬ 
ing-house,  all  owe  their  existence  to  the  observance 
of  the  principle  of  reciprocal  justice  between  man 
and  man  ;  this  whole  fabric  of  credit,  which  has 
already  produced  such  wonderful  results,  began  with 
the  individual,  is  of  individual  growth,  and  still 
clings  to  the  personality  of  the  individual. 

It  was  the  fundamental  idea  of  the  fathers  in 
framing  our  Constitution  that  the  people  should  re¬ 
tain,  as  far  as  possible  and  consistent  with  political 


72 


The  Natural  Law  of  Money 


unity,  the  management  of  their  affairs ;  that  no 
power  should  be  delegated  to  the  county  that 
could  as  well  be  exercised  by  the  town  ;  that  no 
power  should  be  delegated  to  the  State  that  could 
as  well  be  exercised  by  the  county  ;  and  in  like 
manner,  that  no  power  should  be  delegated  to  the 
federal  government  that  could  as  well  be  exercised 
by  the  State.  To  make  an  application  of  this  prin¬ 
ciple  to  the  subject  in  hand — banking, — it  may  be 
stated  that  no  power  which  can  be  exercised  by  a 
community  should  be  delegated  to  the  general  gov¬ 
ernment,  and  that  banking  is  especially  of  such 
quality.  All  our  monetary  enactments  since  the 
issue  of  greenbacks,  in  1862,  have  been  in  conflict 
with  this  principle.  The  Legal-Tender  Act,  the  act 
taxing  State-bank  notes  out  of  existence,  the  act 
closing  the  mints  to  free  coinage  of  silver,  and  the 
act  by  which  silver  was  mechanically  injected  into 
the  currency,  are  all  calculated  to  contract  and 
obstruct  the  only  avenue  of  monetary  growth  that  is 
open  to  the  people,  and  tend  therefore  to  bring  them 
into  helpless  subjection  to  the  government  at  Wash¬ 
ington.  And  these  enactments  are  equally  in  con¬ 
flict  with  the  natural  law  of  money,  which  is  in 
perfect  accord  with,  and  promotive  of,  popular 
government. 


Paper-Money  and  Banking 


73 


It  has  already  been  said  that  government  paper- 
money  is  not  adaptable  to  the  industrial  needs  of 
our  country.  In  order  to  indicate  with  more  exact¬ 
ness  why  this  is  so,  and  to  show  the  superiority  of  a 
bank-note  currency,  it  will  be  necessary  for  us  to 
clearly  demonstrate  the  importance  of  elasticity  as  a 
property  of  money.  The  volume  of  trade  fluctu¬ 
ates  widely,  and  even  under  normal  conditions  has 
seasons  of  activity  and  of  dulness  ;  money  should 
therefore  be  adaptable  to  these  fluctuations.  By  the 
term  “  elasticity,”  when  applied  to  money,  is  meant 
its  responsiveness  to  trade  demands  ;  it  is  said  to 
have  more  or  less  elasticity  in  proportion  to  the  ease 
and  readiness  with  which  its  volume  may  be  increased 
or  diminished  at  a  given  point.  Now,  as  the  volume 
of  metallic  money  cannot  be  readily  expanded  or  con¬ 
tracted,  its  elasticity  depends  mainly  upon  the  ease 
with  which  it  may  be  moved  from  places  where  it  is 
not  needed  to  places  where  it  is  needed.  On  the  other 
hand,  paper-money — by  which  is  meant  bank-notes 
issued  under  a  free  system  of  banking — may  be  in¬ 
creased  or  diminished  in  volume  at  every  point 
whence  it  is  issued  ;  consequently  its  elasticity  is  not 
so  dependent  on  freedom  of  circulation  as  that  of 
metallic  money  is. 

As  will  presently  be  shown,  our  government  paper- 


74 


The  Natural  Law  of  Money 


money  does  not  possess  these  elastic  qualities,  and 

i 

as  a  natural  consequence,  the  supply  of  money  at 
all  points  of  industrial  production  away  from  the 
commercial  centres  has  been  so  uncertain  as  to  pro¬ 
duce  a  widespread  unrest  among  our  people.  They 
realize  fully  the  restrictions  imposed  upon  their  pro¬ 
ductive  powers  by  this  defective  money,  but  they  do 
not  seem  to  understand  that  a  government  paper- 
money  cannot  be  made  adaptable  to  their  local 
wants. 

Bank-notes  being  credit-money,  their  circula¬ 
tion  is  necessarily  limited  to  localities  where  they 
are  known  to  be  good,  and  if  they  wander  beyond 
this  range,  they  are  sent  home,  even  if  their  expenses 
have  to  be  paid  ;  whereas,  coin  of  full  intrinsic  value 
is  returned  only  when  there  is  a  profit  in  returning 
it ;  hence,  paper-money  is  inherently  local  in  charac¬ 
ter.  All  paper-money  needs  supervision  ;  it  cannot 
be  turned  out-of-doors,  as  metallic  money  may  be, 
without  acquiring  vagrant  habits  ;  metallic  money  is 
self-constituted  and  self-sustaining ;  it  has  estab¬ 
lished  its  status  in  every  land  ;  but  paper-money  is 
as  yet  dependent  and  in  a  state  of  tutelage  ;  what  its 
capabilities  may  become  in  the  future,  it  is  not  now 
within  our  province  to  inquire  ;  as  it  has  already  out 
stripped  all  other  money  as  a  factor  in  wealth  pro- 


Paper-Money  and  Banking 


75 


duction,  the  important  questions  for  us  are:  From 
what  source  does  it  derive  its  wonderful  efficiency, 
and  what  are  the  terms  upon  which  it  will  render  its 
best  service?  In  answering  these  questions,  we 
shall  find  that  the  fact  of  its  being  local  money  is 
the  basic  reason  for  its  efficiency,  and  that  its  terms 
for  most  effective  service  are  that  it  shall  work 
under  the  supervision  of  its  issuer,  whose  interest 
is  to  keep  it  in  productive  employment. 

Government  paper-money,  in  the  wide  range  of  its 
circuit,  acquires  something  of  a  nomadic  character  ;  it 
has  no  local  attachments  or  home-ties  ;  nobody  in¬ 
deed  has  any  interest  in  it  but  its  immediate  posses¬ 
sor,  and  his  interest  ceases  with  the  spending  of  it : 
bank-notes,  on  the  other  hand,  will  return  frequently 
to  their  issuer  to  remind  him  of  his  obligations,  and 
to  keep  alive  the  reality  of  their  convertibility.  When 
money  is  spent,  the  spender’s  interest  in  it  ceases ; 
but  when  it  is  lent,  the  lender’s  interest  in  it  in¬ 
creases.  Government  money,  when  issued,  is  always 
spent  money,  no  Treasury  official  having  the  least 
interest  in  it  after  it  leaves  his  hands ;  whereas, 
money  issued  by  a  bank  is  invariably  lent  money, 
the  banker’s  interest  following  it  and  keeping  watch 
over  the  uses  to  which  it  is  put. 

The  issuance  of  paper-money  is  properly  a  func- 


76 


The  Natural  Law  of  Money 


tion  of  banking ;  the  political  mechanism  of  our 
government  is  not  adaptable  to  banking,  as  the 
Treasury  can  pay  out  and  take  in  money  only 
through  its  regularly  authorized  expenditures  and 
collections;  it  is  powerless  to  adjust  the  volume 
of  its  money  to  the  fluctuations  of  trade,  hence 
we  say  government  paper-money  is  deficient  in 
elasticity ;  and  the  fact  of  its  having  a  national 
circulation  is  another  disqualification,  so  far  as 
the  industrial  needs  of  the  nation  are  concerned. 
In  this  vast  country,  government  bills  have  but 
one  point  of  issue,  and  that  not  an  industrial, 
commercial,  or  financial  one ;  they  are  sent  off 
on  their  wanderings  as  spent  money ,  and  are  soon 
caught  up  by  the  general  drift  that  carries  all  such 
money  into  speculative  dealings  at  the  great  finan¬ 
cial  centres.  Nor  could  this  money  be  made  to 
serve  industrial  production  with  the  efficiency  of 
local  bank-notes,  even  if  a  sub-Treasury  with  power 
of  issue  and  redemption  were  planted  in  every  town 
in  the  Union,  because  there  would  still  be  lacking 
that  one  supreme  underlying  motive  power  which 
turns  all  the  wheels  of  industry — the  incentive  of 
profit. 

Wherever  paper-money  has  had  a  free  individual 
growth,  it  will  be  found  adapted  to  the  occu- 


Paper-Money  and  Banking 


77 


pations  of  those  employing  it :  the  banker’s  bill 
of  exchange  is  the  paper-money  of  international 
commerce,  and  the  volume  of  transactions  annually 
settled  with  this  medium  cannot  be  less  than  sixteen 
thousand  million  dollars ;  yet  these  monetary  trans¬ 
actions  proceed  so  quietly  as  to  attract  little  atten¬ 
tion  beyond  the  circles  immediately  concerned  in 
them.  The  bill  of  exchange  is  a  free  growth  of 
individual  credit ;  as  its  range  of  circuit  is  outside  of 
national  boundary  lines,  it  has  escaped  the  poli¬ 
tician’s  meddling. 

Nothing  has  done  so  much  to  obstruct  the  growth 
and  improvement  of  paper-money  in  general,  and  to 
prejudice  people  against  its  use,  as  the  making  it  a 
legal  tender ;  this  legislation  was  the  means  in  colo¬ 
nial  times  of  engendering  for  paper-money  a  dis¬ 
trust  that  still  survives  among  the  better  educated 
people,  while  the  common  people  are  comparatively 
free  from  it.  We  may  even  now  find  among  eco¬ 
nomic  writers  the  opinion  that  the  issuance  of  paper 
is  wrong,  notwithstanding  the  fact  that  they  do  not, 
and  cannot,  point  out  any  possible  means  by  which 
we  can  get  along  without  it. 

To  explain  this  prejudice  we  must  let  the  light 
of  the  colonists’  experience  with  paper-money 
fall  upon  the  facts  of  to-day.  We  shall  see 


78 


The  Natural  Law  of  Money 


that  the  shadow  of  the  king’s  mandate  rested 
upon  the  colonies  during  the  whole  period  from 
the  first  issue  of  paper-money  by  the  General  Court 
of  Massachusetts  in  1690,  down  to  the  day,  in 
1780,  when,  in  sympathy  with  an  aroused  public 
sense  of  justice,  the  Continental  Congress  by  resolu¬ 
tion  begged  the  States  to  repeal  their  legal-tender 
enactments,  and  to  make  an  equitable  settlement 
with  the  holders  of  Continental  bills.  In  view  of 
what  was  and  what  might  have  been,  the  story  of 
the  struggles  of  the  people  of  the  colonies  with 
paper-money,  looked  at  from  an  economic  stand¬ 
point,  becomes  pathetic.  There  was  not,  from  first 
to  last,  any  proper  conception  of  the  real  nature  of 
paper-money :  that  to  give  it  stability,  it  must  be 
redeemable  in  coin  on  demand — that  it  is  a  growth 
of  individual  credit — that  it  must  have  a  local  habi¬ 
tation  and  personal  supervision — had  not  yet  entered 
the  minds  of  the  most  advanced  monetary  students ; 
the  people  lived  out  their  lives,  generation  after  gen¬ 
eration,  in  mental  slavery  to  the  idea  that  it  was  the 
duty  of  the  state  to  supply  their  medium  of  exchange. 

We  need  not  recite  the  many  fruitless  attempts  of 
the  colonists  to  produce  an  efficient  paper-money ; 
the  story  forms  an  interesting  and  instructive  chap¬ 
ter  in  the  history  of  our  country.  Nothing  is  plainer 


Paper-Money  and  Banking 


79 


to  the  thoughtful  reader  who  is  looking  for  causes, 
than  the  fact  that  metallic  money  in  the  colonies 
became  inadequate  to  the  demands  of  their  growing 
trade,  and  that  this  inadequacy  created  a  condition 
which  threw  the  balance  of  advantage  into  the  scale 
of  the  money  holder.  The  time  had  indeed  come 
for  the  people  to  use  credit-money,  but  they  did  not 
understand  its  governing  principles ;  they  did  not 
realize  that  the  stability  and  efficiency  of  this  kind 
of  money  are  dependent  upon  public  confidence,  and 
that  public  confidence  is  simply  an  aggregation  of 
the  individual  confidence  ;  that  individual  confidence 
is  a  thing  of  spontaneous  growth  which  can  never  be 
brought  into  being  at  sovereign  command.  The 
colonists  looked  to  the  state  as  the  only  power  that 
could  supply  their  medium  of  exchange,  and  had 
not  the  least  idea  that  it  was  to  themselves  they 
should  look — that  the  state  could  do  nothing  to  aid 
them  beyond  preventing  fraud  and  certifying  fact. 


CHAPTER  IV. 

PAPER-MONEY  IN  COLONIAL  TIMES. 

HE  paper-money,  or  bills  of  credit,  of  the  dif¬ 


ferent  colonies  varied  more  or  less  in  minor 


details,  but  in  its  more  important  features  it  may  be 
divided  into  two  kinds  :  that  which  had  only  the 
guaranty  of  the  colony  for  its  redemption,  and  that 
which  had  in  addition  a  real  or  personal  security. 
As  this  latter  money  was  the  best  ever  issued  by  the 
colonists,  and  came  to  be  held  in  special  favor  by 
them,  we  may  confine  ourselves  to  the  consideration 
of  this  kind.  It  was  put  into  circulation  by  the 
colony’s  lending  it  for  a  term  of  years  on  interest, 
and  taking  from  the  borrowers  real  or  personal  se¬ 
curity  ;  but  as  none  of  it  was  redeemable  within  a 
year  of  its  issue,  and  much  of  it  ran  for  five  or  for 
ten  years,  it  could  not  maintain  stability.  The  idea 
that  paper-money  could  be  made  to  maintain  par 
value  in  circulation  by  redeeming  it  in  coin  on  de- 


80 


Paper-Money  in  Colonial  Times  81 


mand,  seems  not  to  have  occurred  to  the  colonists ; 
they  looked  to  the  credit  and  authority  of  the  state 
to  impose  this  quality  upon  their  money.  The  lack 
of  public  confidence  in  the  money  appeared  to  them 
to  arise  solely  from  a  lack  of  confidence  in  its  ulti¬ 
mate  redemption ;  the  thought  evidently  did  not 
suggest  itself  to  them  that  the  most  absolute  cer¬ 
tainty  of  remote  redemption  could  not  serve  the 
bill-holder  whose  immediate  necessities  demanded 
metallic  money,  and  that  if  there  were  but  one  such 
bill-holder  among  a  hundred,  the  whole  volume 
of  paper-money  would  depreciate  until  his  needs 
were  satisfied. 

The  first  issue  of  bills  of  credit  was  made  by 
Massachusetts  in  1690:  it  was  not  then  known  in 
England  or  in  America  why  clipped  coin  should 
hold  its  place  in  the  circulation,  while  coin  of  full 
weight  could  not  ;  although  this  problem  had  been 
solved  by  Sir  Thomas  Gresham  more  than  a  hundred 
years  before,  its  solution  was  not  known  to  the 
colonists  ;  it  was  therefore  not  to  be  expected  that 
they  should  understand  the  workings  of  their  paper- 
money.  England,  in  common  with  monarchical 
Europe,  had  long  before  fallen  into  the  way  of  look¬ 
ing  at  money  as  of  the  king’s  creation,  and  what 
England  thought  in  reference  to  money,  the  colonists 


82 


The  Natural  Law  of  Money 


thought.  The  crown  arrogated  to  itself  the  power 
to  fix  the  value  of  money,  and  nobody  questioned 
that  power.  In  the  years  following  the  introduction 
of  paper-money  in  the  colonies,  it  came  to  be  under¬ 
stood  that  metallic  money  was  but  a  commodity 
with  which  the  people  were  as  competent  to  supply 
themselves  as  with  any  other  commodity ;  but  this 
knowledge  was  confined  to  the  few,  and  even  the 
few  never  understood  the  nature  of  paper-money. 
Nor  is  there  any  evidence  that  the  law  of  metallic 
money  was  sufficiently  assimilated  by  any  one  to 
enable  him  to  perceive  that  it  was  beyond  the  power 
of  the  state  to  regulate  the  value  of  it,  or  that  the 
assumption  of  such  power  by  the  state  was  not  one 
of  the  legitimate  prerogatives  of  sovereignty. 

The  repeated  failures  of  the  colonists  to  produce 
a  paper-money  that  would  possess  the  stability  of 
coin,  were  attributed  by  them  to  the  nature  of  the 
money  itself,  and  not  to  its  inconvertibility ;  if  they 
had  understood  the  governing  principles  they  need 
never  have  been  without  a  sufficiency  of  good,  ser¬ 
viceable  money.  The  whole  difficulty  was  that  they 
looked  upon  money  as  a  thing  that  only  the  state 
could  supply,  and  they  never  freed  themselves  from 
this  mental  delusion.  The  power  they  depended 
upon  to  supply  them  was  not  only  incompetent  for 


Paper-Money  in  Colonial  Times  83 


the  task,  but  the  coercive  instrumentalities  which  it 
employed  to  force  its  defective  money  into  circu¬ 
lation  prevented  the  natural  growth  of  credit-money 
which  otherwise  would  have  taken  place. 

Apparently  there  was  always  a  sufficiency  of 
metallic  money  in  the  colonies  when  it  was  not 
driven  out  by  defective  paper  money  ;  but  increasing 
trade,  with  its  accompanying  complexities,  called 
for  a  more  flexible  currency,  and  the  appearance  of 
paper-money  was  in  itself  a  proof  that  the  time  had 
come  for  its  use.  The  amount  of  metallic  money  in 
the  colonies  just  before  the  breaking  out  of  the 
Revolution  was  estimated  at  from  eight  to  twelve 
million  dollars.  (Alexander  Hamilton’s  estimate 
was  eight  million.)  The  population  of  the  colonies 
was  then  less  than  four  millions.  Canada,  to-day, 
with  a  population  of  five  millions,  and  a  trade  pro¬ 
portionately  very  much  larger  than  that  of  the 
colonies,  finds  thirteen  million  dollars  of  gold  (that 
metal  being  her  only  metallic  standard)  an  ample 
basis  for  all  her  monetary  transactions. 

Within  thirty  years  of  the  first  issue  of  colonial 
paper-money  it  had  come  into  general  use  in  all  the 
colonies,  and  in  Massachusetts  the  demand  for  it  was 
so  urgent  that  it  became  necessary  to  establish 
county  loan-offices  in  order  that  the  borrowers  might 


84 


The  Natural  Law  of  Money 


have  an  even  chance  to  obtain  their  pro  rata  share. 
In  the  estimation  of  the  wise  and  well-to-do  of  the 
time,  it  was  a  “  borrowing-passion,”  an  “  epidemic,” 
that  had  gotten  possession  of  the  people.  But  even 
a  passion  and  an  epidemic  have  their  causes.  Back 
of  this  movement  lay  the  imperative  necessity,  if 
not  for  more  money,  at  least  for  a  more  serviceable 
money.  The  backwardness  of  monetary  knowledge 
at  this  time  may  be  judged  from  the  fact  that,  in 
1722,  George  I.  issued  a  patent  to  one  William  Wood 
to  make  coin  from  pinchbeck  for  circulation  in  the 
colonies. 

Paper-money  became  a  serious  question  in  the 
politics  of  the  colonies,  and  continued  to  be  so  down 
to  the  Revolution  ;  through  the  pressure  of  im¬ 
personal  forces  there  was  a  constant  demand  for  it 
coming  from  the  great  body  of  the  people.  On  the 
other  hand,  it  was  deemed  by  many  to  be  nothing 
better  than  a  corrupting  monetary  innovation.  A 
state  wields  no  power  so  effective  to  lift  or  to  lower 
the  morals  of  a  people  as  its  monetary  legislation, 
and  no  legislation  could  be  more  destructive  of 
morality  than  the  paper-money  laws  of  the  colonists 
— laws  which  put  it  into  the  power  of  a  debtor  to 
evade  the  payment  of  his  just  debts,  and  thus  per¬ 
verted  the  sense  of  justice  and  offered  a  premium  to 


Paper-Money  in  Colonial  Times  85 


dishonesty  ;  laws  which  arbitrarily  fixed  the  prices  of 
commodities,  irrespective  of  cost  to  the  producer, 
thus  striking  down  one  of  the  chief  incentives  to 
industry  and  frugality,  which  is  profit ;  laws  which 
prohibited  the  exportation  of  coin  and  bullion, 
denying  to  the  individual  that  protection  which  the 
state  owes  him  to  hold  and  use  his  property  for  his 
own  benefit,  and  thus  converts  him  into  a  smuggler 
and  a  contemner  of  law. 

It  is  to  this  coercive  and  demoralizing  legisla¬ 
tion  that  the  failure  of  colonial  paper-money  must 
be  attributed,  and  not  to  the  money  itself,  not¬ 
withstanding  its  defective  character ;  its  lack  of 
stability  and  of  elasticity  would  have  had  a 
tendency  to  misdirect  industry  and  to  incite  to 
speculation,  but  if  utterly  vicious  measures  had  not 
been  adopted  to  force  its  circulation  at  a  factitious 
value,  we  may  fairly  assume  that  it  would  have 
gradually  grown  in  favor  and  that  its  quality  would 
have  improved  by  changes  in  the  manner  and 
form  of  issuing  it.  Although  these  arbitrary  laws 
were  not  always  in  force,  they  were  so  frequently 
resorted  to  as  to  be  inseparably  associated  with 
paper-money  in  the  minds  of  the  people.  When 
coin  was  driven  from  circulation  it  was  by  the  opera¬ 
tion  of  the  legal-tender  quality  given  to  paper- 


86 


The  Natural  Law  of  Money 


money,  and  not  because  the  money  was  paper ;  but 
as  this  distinction  never  became  clear  to  the  popular 
mind,  paper-money  circulated  under  a  cloud  of  dis¬ 
trust  even  during  those  times  when  it  rested  solely 
upon  its  intrinsic  merits.  Thus  it  was  that  the 
growth  and  improvement  of  colonial  paper-money 
was  stifled  by  the  king’s  mandate. 

In  comparing  the  colonial  paper-money  move¬ 
ment  with  our  silver  movement,  we  find  a  marked 
similarity  as  well  in  the  popularity  of  the  two  move¬ 
ments  as  in  the  character  of  the  opposition  to  them. 
The  colonist  opponents  of  paper-money  took  the 
position  that  this  money  was  a  worse  than  useless 
innovation,  and  that  their  silver  money  was  all-suffi¬ 
cient.  This  view  was  held  as  late  as  1819,  by  John 
Adams,  who  was  a  student  of  monetary  science  ;  this 
is  shown  by  the  following  extract  from  a  letter  of  his 
of  that  year:  “  I  am  old  enough  to  have  seen  a  paper 
currency  annihilated  at  a  blow  in  Massachusetts  in 
1750,  and  a  silver  currency  taking  its  place  imme¬ 
diately,  and  supplying  every  necessity  and  every 
convenience.”  1  The  public  demand  for  paper- 
money  was  attributed  to  personal  dishonesty,  and 
not  to  any  need  for  this  new  money.  In  politics  it 
became  a  question  of  individual  morals  rather  than 

1  Life  and  Works ,  x.,  375. 


Paper-Money  in  Colonial  Times  87 


of  finance,  and  there  were  examples  of  such  rare 
integrity  as  men  declining  from  principle  to  pay 
their  debts  in  paper  ;  yet  the  movement  went  on 
persistently  at  all  times,  when  not  suppressed  by  the 
home  government,  or  when  it  had  not,  by  excessive 
issues,  broken  down  in  utter  wreck.  Notwithstand- 
ing  all  the  difficulties  attending  the  use  of  this 
money,  it  rendered  considerable  service  to  the 
colonists,  and  was  generally  admitted,  even  by  its 
opponents,  to  have  done  excellent  service  during 
the  revolutionary  war.  Thomas  Paine  said  of  it : 
“  Every  stone  in  the  bridge  that  has  carried  us  over 
seems  to  have  a  claim  upon  our  esteem.  But  this 
was  the  corner-stone,  and  its  usefulness  cannot  be 
forgotten.”  1 

The  paper-money  movement  of  the  colonists  pro¬ 
ceeded  from  the  fact  that  they  had  reached  the 
stage  of  industrial  development  when  metallic  money 
could  no  longer  supply  all  their  needs  ;  and  the  com¬ 
mon  people’s  advocacy  of  the  new  money  proved 
that  their  apparent  ignorance  was  but  the  expres¬ 
sion  of  a  profounder  instinct.  Our  silver  movement 
has  an  equally  substantial  warrant  for  its  existence  ; 
it  proceeds  from  the  fact  that  the  money  that  has 
been  substituted  for  bank  notes  will  not  render  ser- 


1  Letter  to  Abbe  Reynal 


88 


The  Natural  Law  of  Money 


vice  where  service  is  most  needed  ;  the  need  of  money 
is  felt,  but  the  nature  of  the  want  is  not  understood. 
It  is  believed  to  be  caused  by  a  scarcity  of  gold,  and 
that  an  increase  in  the  volume  of  silver  would  com¬ 
pensate  for  this  deficiency  and  supply  the  need  ;  but 
this  view  loses  sight  of  the  well-known  historical 

i 

fact  that  two  hundred  years  ago,  when  the  magni¬ 
tude  and  complexities  of  trade  were  relatively  not  a 
hundredth  part  of  what  they  are  now,  the  English- 
speaking  people  had  reached  the  period  of  paper- 
money,  when  without  it  the  metals  could  no  longer 
supply  their  needs,  and  when  further  industrial 
progress  was  only  made  possible  by  an  intelligent 
use  of  the  new  money. 

The  fact  has  been  overlooked  that  since  the 
introduction  of  paper-money  the  natural  trend 
of  improvement  has  been  wholly  towards  an  in¬ 
crease  of  credit-money,  and  a  relative  lessening 
of  the  need  for  the  precious  metals.  We  have 
been  led  away  by  the  delusion  that  there  is  not 
enough  gold  in  the  world  to  supply  the  world’s  needs, 
ignoring  the  fact  that  it  is  value  and  not  volume  that 

constitutes  the  money  standard,  and  that,  therefore, 

0 

stability  is  the  essential  point  to  be  looked  to.  Under 
the  mistaken  impression  that  the  public  craving  for 
money  proceeds  from  insufficient  supply  and  not 


Paper-Money  in  Colonial  Times  89 


from  defective  quality,  we  have  attached  undue  im¬ 
portance  to  the  acts  of  foreign  governments  in 
demonetizing  silver  ;  yet  while  noting  clearly  the  dis¬ 
turbing  effects  of  their  action  upon  the  stability  of 
silver,  we  have  ourselves  become  the  greatest  dis¬ 
turbers  of  the  silver  market ;  by  ignoring  the  funda¬ 
mental  monetary  law  which  forbids  interference  with 
the  free  flow  of  the  precious  metals,  we  have  for  the 
time  being  rendered  silver  unfit  for  monetary  use. 

Because  of  the  larger  diffusion  of  intelligence  and 
the  larger  trustfulness  that  is  found  here  as  com¬ 
pared  with  European  countries,  together  with  our 
immunity  from  sudden  outbreaks  of  war,  a  very 
much  smaller  proportion  of  coin  is  needed  by  us 
than  in  the  specie-paying  countries  of  Europe.  In¬ 
deed,  ours  is  particularly  a  paper-money  country. 
Notwithstanding  the  extraordinary  effort  made  to 
force  silver  dollars  into  circulation  by  paying  the  ex¬ 
press  charges  on  them,  the  limit  of  possible  output 
was  reached  at  sixty  millions,  and  these  went  mainly 
to  the  South,  a  fact  that  should  be  noted  as  showing 
how  true  it  is  that  money  will  always  find  its  way 
into  the  channels  of  employment  for  which  it  is  best 
adapted.  These  dollars  are  eminently  well-fitted  to 
the  simple  trading  of  the  negroes,  and  if  we  should 
adopt  the  single  gold  standard,  excluding  this  coin 


90 


The  Natural  Law  of  Money 


from  circulation,  it  would  retard  the  industrial  ad¬ 
vancement  of  the  South.  The  negro  prefers  this 
money  to  either  gold  or  paper. 

Improvement  in  money  proceeds  altogether  on 
practical  lines,  the  impetus  in  that  direction  coming 
from  the  great  body  of  the  people,  which  concerns 
itself  little  with  economic  theories.  At  the  head  of 
this  movement  is  the  banker,  who  has  shown  that 
when  not  trammelled  by  restrictive  legislation,  he  is 
entirely  competent  to  meet  and  provide  for  the 
varying  conditions  of  trade  that  exist  around  him. 
But  there  has  been  no  time  in  the  history  of  our 
country  when  banking  has  not  been  more  or  less  re¬ 
stricted  by  laws  intended  to  protect  the  bill-holder 
and  the  depositor,  which,  while  ineffective  for  the 
purpose  designed,  have  operated  to  retard  the  growth 
of  the  business. 

Considerable  progress  was  made  in  banking 
methods  in  the  interval  between  the  Revolution 
and  our  civil  war ;  but  the  issuance  of  govern¬ 
ment  paper-money  as  a  war  measure,  together  with 
the  subsequent  suppression  of  State-bank  notes, 
revived  the  antiquated  idea  that  it  is  the  duty  of 
government  to  provide  the  money  of  the  people. 
It  was  this  idea  that  retarded  the  growth  of  banking 
during  the  colonial  period,  and  it  is  the  prevalence 


Paper-Money  in  Colonial  Times  91 


of  the  same  idea  to-day  that  is  chiefly  responsible  for 
our  present  monetary  backwardness.  This  supersti¬ 
tion  so  obscured  the  colonists’  views  in  reference  to 
paper-money  that  they  never  got  a  glimpse  of  the 
true  principles  of  banking,  and  at  no  time  did  they 
ever  have  a  clear  perception  of  money  as  simply  a 
medium  of  exchange.  They  continued  to  the  end 
to  rely  upon  the  authority  and  credit  of  the  State 
for  their  paper-money  ;  this  is  evidenced  by  the  fact 
that,  notwithstanding  the  ill-success  of  the  individual 
colonies  with  paper-money,  it  was  the  general  belief 
when  the  Continental  bills  were  issued  that  this 
“  universal  money,”  as  it  was  called,  being  supported 
by  all  the  States,  must  certainly  be  a  success.  The 
failure  of  Continental  money  finally  produced  a  gen¬ 
eral  disgust  for  all  paper-money ;  the  prejudice 
against  it  was  very  strong  and  bitter,  especially 
among  moneyed  men  and  people  of  property  ;  there 
was  still,  however,  a  paper-money  party  in  the  coun¬ 
try,  though  it  was  for  the  time  quiescent. 

This  was  the  temper  of  the  public  mind  in  regard 
to  paper-money  when  the  federal  Constitution  was 
framed  ;  specie  was  considered  the  only  legitimate 
money ;  the  issuance  of  paper-money  was  held  to  be 
a  governmental  prerogative,  and  the  right  of  the 
state  to  make  it  a  legal  tender  was  not  questioned  ; 


92 


The  Natural  Law  of  Money 


but  in  view  of  the  evil  effects  already  experienced^ 
its  issuance  was  regarded  as  justifiable  only  in  cases 
of  extreme  emergency. 

It  was  not  until  1782,  when  the  Bank  of  North 
America  was  started,  that  the  first  forward  step  was 
made  towards  the  displacement  of  government 
paper-money  by  bank  notes.  These  notes  were  pay¬ 
able  in  coin  on  demand,  and  were  the  first  paper- 
money  ever  issued  in  America  that  recognized  the 
essential  principle  of  immediate  redemption  ;  but 
neither  in  America  nor  England  was  the  potentiality 
of  this  principle  fully  realized.  In  neither  country 
was  it  understood  that  in  no  way  but  through  a  faith¬ 
ful  observance  of  the  principle  of  immediate  redemp¬ 
tion  could  such  a  sense  of  public  confidence  be 
inspired  as  would  maintain  a  paper  currency  at  par. 
In  both  countries  state  support  was  deemed  essen¬ 
tial.  The  Bank  of  North  America  was  practically  a 
national  institution  ;  nearly  two-thirds  of  its  capital 
were  subscribed  by  the  general  government,  and  it 
was  absolutely  under  the  control  of  the  Finance 
Minister,  Robert  Morris.  Its  notes  were  receivable 
as  specie  for  duties  and  taxes,  and  in  payment  of 
dues  from  the  respective  States. 

The  Bank  of  England,  though  at  this  time  it  had 
been  in  operation  for  eighty-six  years,  was  still  a 


Paper-Money  in  Colonial  Times  93 


government  monopoly,  overshadowing  and  obstruct¬ 
ing  any  banking  enterprise  of  an  individual  character. 
Its  capital  was  government  debt,  against  which  notes 
were  issued  to  an  equal  amount,  and  although  these 
notes  were  payable  in  coin  on  demand,  this  principle, 
not  being  fully  understood,  was  not  carried  out  with 
sufficient  promptness  and  uniformity  to  remove  the 
distrust  of  paper-money  that  lingered  in  the  public 
mind. 

The  Bank  of  England  was  undoubtedly  America’s 
model  in  banking,  but  the  conditions  in  America 
were  not  such  as  to  permit  the  establishment  of  a 
similar  monopoly.  The  sensitiveness  of  the  States 
in  regard  to  centralizing  power  in  the  general  gov¬ 
ernment,  combined  with  a  deep-seated  jealousy  of 
monopolies,  defeated  the  original  design  of  the  Bank 
of  North  America,  which  was  to  have  been  the  fiscal 
agent  of  the  nation,  with  a  monopoly  of  bank-note 
issue.  In  this  condition  of  public  sentiment,  the 
right  of  Congress  to  charter  the  bank  was  questioned  ; 
it  was  found  that  the  Articles  of  Confederation  con¬ 
tained  no  power  to  charter  a  bank ;  but  as  Congress 
had  already  pledged  its  word,  and  was  itself  depend¬ 
ing  on  the  bank  to  supply  its  pressing  need  of 
money,  a  compromise  measure  was  adopted.  The 
charter  was  granted  “  with  a  recommendation  to  the 


94 


The  Natural  Law  of  Money 


States  to  give  it  all  the  necessary  validity  within 
their  respective  jurisdictions.”  It  was  also  tacitly 
understood  that  the  exclusive  right  of  the  bank  to 
issue  notes  should  end  with  the  war.  But  the  virtual 
admission  by  Congress  of  its  defective  powers,  made 
it  necessary  for  the  bank  to  obtain  a  charter  from 
the  State  of  Pennsylvania,  and  the  door  was  thus 
opened  to  joint-stock-company  banking. 

Before  the  present  national  government  went  into 
operation  in  1789,  New  York  and  Massachusetts  had 
each  chartered  a  bank,  and  when  the  United  States 
bank  was  chartered  by  the  federal  government  in 
1790,  there  were  already  in  existence  five  corporate 
banks,  holding  State  charters,  with  a  capital  of 
$3, x35, °00-  In  :794  there  were  sixteen  such  banks; 
in  1796,  twenty-four;  and  by  1804  there  were  sixty- 
five,  with  a  total  capital  approaching  $40,000,000. 

Thus  it  was  that  through  a  fortuitous  combination 
of  circumstances,  banking  had  broken  away  from  the 
restraints  of  centralized  authority,  and  was  drifting 
on  practical  lines  into  its  natural  channel.  By  un¬ 
dertaking,  in  imitation  of  England,  to  issue  paper- 
money  through  a  national  bank  rather  than  directly 
by  the  government,  a  line  of  demarcation  was  drawn 
which  finally  left  banking  and  the  production  of 
paper-money  in  the  hands  of  the  people.  Though  the 


Paper-Money  in  Colonial  Times  95 


framers  of  the  federal  Constitution  had  practically 
precluded  the  direct  issue  of  paper-money  by  the 
federal  government,  popular  opinion  in  regard  to 
this  form  of  money  had  not  materially  changed.  In 
the  public  estimation,  its  issuance  was  a  prerogative 
of  government  ;  but  to  transfer  this  power  to  a  cor¬ 
poration  which,  though  absolutely  under  the  control 
of  government,  embodied  in  part  individual  owner¬ 
ship,  was  deemed  to  be  incompatible  with  repub¬ 
licanism. 

The  contest  over  the  United  States  Bank  which 
in  later  years  became  a  “  burning  question  ”  in 
national  politics,  had  no  reference  to  the  prevailing 
opinion  that  it  was  a  function  of  government  to 
supply  the  people’s  money.  Hamilton,  the  founder 
of  the  Federalist  party,  and  Jefferson,  the  founder 
of  the  Democratic  party  (then  called  the  Republican 
party),  were  at  one  on  that  point.  They  differed  as 
to  the  expediency  of  issuing  paper-money,  Hamilton 
favoring  the  issue  and  Jefferson  opposing  it ;  though 
both  looked  upon  it  as  a  fiscal  agency  rather  than  as 
a  medium  of  exchange.  Hamilton’s  preference  was 
for  a  single  bank  which,  as  the  fiscal  agent  of  the 
general  government,  should  be  the  only  bank  of  issue 
for  the  nation.  Jefferson  was  opposed  to  all  banks 
of  issue,  and  a  national  bank  he  justly  looked  upon 


g6  The  Natural  Law  of  Money 


as  a  centralizing  agency  in  conflict  with  the  princi¬ 
ples  of  popular  government. 

A  better  understanding  of  the  principles  of  money 
would  have  shown  Jefferson  how  perfectly  they  har¬ 
monized  with  his  theory  of  government ;  but  he 
never  clearly  understood  those  principles,  and  the 
course  that  banking  had  taken  disturbed  him 
greatly  in  his  later  years.  His  failure  to  compre¬ 
hend  the  personalism  of  money  is  the  more  remark¬ 
able  because  no  one  of  the  fathers  of  the  republic 
had  a  truer  sense  of  what  constituted  popular  gov¬ 
ernment  than  he ;  and  no  one  of  them  was  in 
closer  sympathy  with  the  great  body  of  the 
people.  The  banking  “  mania  ”  which  had  seized 
upon  the  people  was  unintelligible  to  him  :  “  I  be¬ 
lieve  it  to  be  one  of  those  cases  where  mercantile 
clamor  will  bear  down  reason  until  it  is  corrected  by 
ruin,”  he  wrote  in  1813. 1  In  1815  he  made  the  fol¬ 
lowing  peculiar  statement  in  regard  to  bank-notes : 
“  The  banks  were  able  for  a  while  to  keep  this  trash 
at  par  with  metallic  money,  or  rather  to  depreciate 
the  metal  to  a  par  with  paper ,  by  keeping  deposits  of 
cash  sufficient  to  exchange  for  such  of  their  notes  as 
they  were  called  on  to  pay  in  cash.”9  In  his  plan 

Jefferson’s  Works ,  vol.  vi.,  p.  232. 

9 16-,  p.  434- 


Paper-Money  in  Colonial  Times  97 


for  reducing  the  circulating  medium,  submitted  to 
Mr.  Rives  in  1819,  among  other  strictures  upon  the 
issue  of  paper-money,  he  says  :  “  Interdict  forever 
to  both  State  and  national  governments  the  power 
of  establishing  any  paper  bank  ”  ;  and  again  :  “  Cer¬ 
tainly  no  nation  ever  before  abandoned  to  the 
avarice  and  jugglings  of  private  individuals,  to  regu¬ 
late,  according  to  their  own  interest,  the  quantum  of 
circulating  medium.”  1 

And  yet  it  is  only  through  private  individuals, 
each  acting  in  his  own  interest,  that  the  quantum 
of  circulating  medium  can  be  regulated ;  if  all  mone¬ 
tary  legislation  were  repealed,  leaving  the  people 
entirely  free  to  produce  their  medium  of  exchange, 
this  medium  could  move  only  in  one  direction,  and 
that  towards  a  higher  degree  of  refinement. 

Although  the  views  entertained  about  money  had 
undergone  but  little  change  since  colonial  times,  the 
conditions  stated,  which  had  transferred  the  produc¬ 
tion  and  regulation  of  money  from  the  general  to 
the  State  governments,  brought  this  work  closer  to 
the  people  and  to  their  occupations  ;  it  was  not  to 
be  expected  that  there  would  be  any  immediate  < 
improvement  of  the  monetary  legislation  of  the 
States  over  that  of  the  general  government,  but  with 

1  Jefferson' s  Works,  vol.  vi.,  p.  147. 


98 


The  Natural  Law  of  Money 


thirteen  distinct  legislative  bodies  acting  upon  this 
one  subject,  there  would  necessarily  be  differences ; 
these  differences  in  course  of  time  would  demonstrate 
advantages,  and  this,  taken  together  with  their  closer 
relations  to  the  occupations  of  the  people,  would 
necessarily  produce  improvement  in  money. 

It  is  not  our  purpose  to  follow  the  growth  of 
paper-money  under  state  legislation — much  of  this 
money  was  positively  bad, — but  before  the  breaking 
out  of  the  civil  war  and  the  issuance  of  greenbacks, 
there  were  many  instances  where  the  money  had 
reached  a  stage  of  development  fully  abreast  with 
the  best  economic  teachings  of  that  time,  and  we 
need  not  doubt  that,  if  the  State  banks  had  been 
permitted  to  continue  the  issuance  of  paper-money, 
we  should  by  this  time  have  a  money  as  good  as  any 
nation  has. 


CHAPTER  V. 

THE  MONETARY  SYSTEM  OF  CANADA  AS  CONTRASTED 
WITH  THAT  OF  THE  UNITED  STATES. 


ANADA  to-day,  with  a  gold  basis  of  about 


thirteen  million  dollars,  supplies  all  her 
monetary  needs  with  great  efficiency ;  she  is  not 
only  able  to  supply  all  her  own  legitimate  wants,  but 
has  for  many  years  rendered  substantial  aid  to  our 
western  people  in  the  movement  of  crops  in  the 
autumn ;  this  was  notably  the  case  in  regard  to  the 
heavy  crops  of  1891. 

Canada’s  total  authorized  banking  capital  is  some¬ 
thing  over  seventy-five  million  dollars,  and  the  paid- 
up  capital  a  little  less  than  sixty-two  million  dollars. 
The  banks  are  permitted  to  issue  notes  equal  to  the 
amount  of  their  unimpaired  capital ;  the  average 
circulation  of  bank-notes  is  about  thirty-five  million 
dollars,  and  the  till-money  is  about  fifteen  million 
dollars,  leaving  twelve  million  dollars  in  reserve  for 
extraordinary  contingent  demands.  The  demand 


99 


ioo  The  Natural  Law  of  Money 


for  money  during  the  harvest  months  is  increased 
about  twenty-five  per  cent.,  and  the  large  bank-note 
reserve  enables  the  banks  to  meet  this  special  call 
for  money  without  adding  a  fraction  to  the  rate  of 
interest ;  for  when  these  notes  are  not  in  service, 
they  are  lying  in  the  vaults  of  the  banks  without 
cost  to  the  banks  or  to  their  customers. 

There  is  no  bond  security  for  the  bills;  the  only 
security  is  a  first  lien  on  the  assets  of  the  bank  and 
on  the  double  liability  of  the  stockholders,  the  total 
amount  of  which  security  averages  four  or  five  times 
the  total  possible  circulation,  and  seven  times  the 
average  circulation.  There  is,  besides,  a  note- 
redemption  fund,  contributed  by  the  banks  and  held 
by  the  government  for  the  immediate  redemption  of 
the  notes  of  insolvent  banks.  This  fund  amounts 
to  five  per  cent,  of  the  total  sum  of  notes  in  circu¬ 
lation  during  the  previous  year,  each  bank  being  re¬ 
quired  to  keep  its  proportion  good.  The  holder  of 
a  failed-bank  bill  has,  besides,  the  guaranty  of 
every  solvent  bank  for  the  payment  of  his  bill ;  the 
result  is  that  every  Canadian  has  a  sense  of  complete 
security  in  the  money  of  the  country. 

There  has  been  no  bank  failure  in  Canada  during 
the  term  of  the  present  or  of  the  preceding  Banking 
Act  (which  latter  dates  from  1880),  in  which  the 


Monetary  System  of  Canada  ioi 


assets  of  the  insolvent  bank  were  not  sufficient  to 
pay  all  the  bill-holders.  So  far  as  can  be  ascertained, 
there  has  been  no  general  suspension  of  specie  pay¬ 
ment  in  Canada  within  the  past  forty  years  ;  there 
was  certainly  no  suspension  there  in  1857,  when  the 
banks  of  the  United  States  suspended,  nor  has  there 
been  any  since  that  time. 

In  submitting  Canada’s  monetary  system  to  the  test 
of  fundamental  principles,  the  only  defects  we  find 
are  those  which  arise  from  legislative  interference :  her 
government  has  reserved  to  itself  the  right  to  issue 
legal-tender  paper-money  ;  the  limit  of  such  issue, 
as  at  present  fixed  by  statute,  is  twenty  million  dol¬ 
lars,  and  of  this  total  about  nineteen  million  dollars 
has  been  put  out.  The  government  has  also  estab¬ 
lished  a  number  of  post-office  and  other  savings- 
banks,  competing  with  the  corporate  banks  for  the 
deposits  of  the  people,  thus  crowding  up  the  rate  of 
interest  upon  the  whole  Dominion.  As  might  be 
expected  there  is  a  bond  security  to  the  government 
paper-money.  Gold  being  the  only  standard  of  value 
in  Canada,  this  paper-money  has  for  its  basis  of  re¬ 
demption  fifteen  per  cent,  in  that  metal,  and  for 
security  ten  per  cent,  in  Dominion  bonds  guaranteed 
by  the  British  government,  and  seventy-five  per 
cent,  in  Dominion  bonds  not  so  guaranteed.  The 


102  The  Natural  Law  of  Money 


government  retains  to  itself  the  issuance  of  all  paper- 
money  of  a  lower  denomination  than  five  dollars  ;  it 
also  requires  each  bank  to  carry  forty  per  cent,  of  its 
reserves  in  Dominion  notes  ;  there  are,  however,  no 
statutory  restrictions  on  bank  reserves,  that  mat¬ 
ter  being  left  very  properly  to  the  judgment  of  the 
banker.  A  reserve  that  is  fixed  by  statute  may 
operate  as  an  embarrassment,  but  cannot  as  a 
security.  Bank  auditing,  bank  statements  published 
monthly,  a  strict  holding  of  the  banks  to  their  obli¬ 
gations  under  penalty  of  forfeiture  of  their  charters, 
and,  added  to  these,  individual  punishment  for 
irregular  or  criminal  banking,  are  the  best  securities 
the  public  can  have,  and  these  Canada  has  provided. 

No  better  example  can  be  found  to  illustrate  the 
divergence  in  monetary  ideas  between  the  banker 
and  the  politician  than  is  furnished  by  Canada.  In 
all  the  essential  characteristics  of  banking,  the  former 
is  abreast  with  the  intelligence  of  his  time,  while 
the  latter  still  clings  to  the  old  notion  that  the  State 
can  arbitrarily  enforce  credit.  By  making  the  Do¬ 
minion  notes  legal  tender,  and  then  compelling  the 
banks  to  carry  forty  per  cent,  of  their  reserves  in 
these  notes,  the  Canadian  government  has  need¬ 
lessly  burdened  the  banks,  and  in  so  doing  has 
betrayed  ignorance  of  monetary  law.  The  same 
principles  govern  the  relation  between  debtor  and 


Monetary  System  of  Canada  103 


creditor,  whether  a  State  or  an  individual  is  the 
debtor ;  these  principles  operate  with  equal  force  in 
cither  case,  and  cannot  be  set  aside  with  impunity. 

There  is  no  such  thing  as  compulsory  credit ;  the 
whole  banking  system  of  Canada  rests  upon  a  foun¬ 
dation  of  confidence ;  hence  when  the  government 
exacts  from  the  banks  an  enforced  credit  of  forty 
per  cent,  of  their  reserves,  it  weakens  this  founda¬ 
tion,  and  with  it  the  whole  fabric  of  credit  of  the 
Dominion.  But  as  the  banks  are  amply  able  to  meet 
every  legitimate  demand  upon  them  for  coin,  the 
enforcing  enactment  is  practically  inoperative  so  far 
as  the  people  are  concerned,  since  no  judicious 
banker  would  force  these  notes  upon  a  customer 
who  needed  coin  ;  and  it  is  to  intelligent  and  upright 
banking  that  Canada  owes  her  great  advantage  in 
the  possession  of  an  ample  currency  which  is  at  once 
safe,  stable,  and  elastic.  The  large  measure  of  indi¬ 
viduality  and  freedom  conferred  by  the  Banking 
Act  of  Canada  has  evidently  been  inspired  by 
bankers,  as  the  government’s  own  monetary  methods, 
if  carried  to  their  logical  conclusion,  are  calculated 
to  undermine  credit. 

Canada’s  monetary  system  is  a  complete  refutation 
of  the  argument  so  persistently  advanced  among  us 
that  there  is  not  enough  gold  in  the  world  to  supply 
the  money  needs.  The  per-capita  statisticians  would 


104  The  Natural  Law  of  Money 


have  us  believe  that  we  are  helplessly  dependent  up¬ 
on  the  volume  of  the  precious  metals  for  our  medium 
of  exchange,  and  yet  here  is  a  country  that  main¬ 
tains  a  paper  circulation  of  $16.40  per  head  on  a 
metallic  base  of  only  $2.64  per  head,  without  the 
least  strain  to  her  credit 1 ;  while  our  paper-money 
averages  $16.40  per  head  with  a  metallic  base  of 
$1 1.36  per  head,  $7.20  of  which  is  silver  and  $4.16 
gold.2  In  computing  this  ratio  of  $11.36  to  $16.40, 


1  The  following  figures,  taken  from  the  official  statement  of  the 
Canadian  government  for  the  month  ending  July  31,  1893,  form  the 
basis,  in  regard  to  Canada,  of  these  computations  : 

Authorized  government  note  issue .  $20,000,000 

Paid  up  banking  capital  against  which  notes  may  be 

issued .  61,954,773 

Total  note  issue .  $81,954,773 


Specie  held  by  the  government .  $  6,863,123 

Specie  held  by  the  banks .  6,369,996 

Total  specie .  $13,233,119 


The  population  of  Canada  is  computed  at  five  millions. 


2  The  following  figures,  taken  from  the  official  statement  of  the 
United  States  Treasury  for  August  1,  1893,  form  the  basis,  in  regard 
to  the  United  States,  of  these  computations  : 


Silver  certificates. . . 

Treasury  notes . . 

Greenbacks . 

Gold  certificates. . . . 
National-bank  notes 

Total  note  issue 


$333,031,504 

148,286,348 

346,681,016 

87,704,739 

i83,755U47 

$1,099,458,754 


Gold  coin  in  Treasury. . $103,363,626 

Gold  bullion  in  Treasury .  83,450,336 

Gold  held  by  national  banks .  91,764,347  278,578,309 


Standard  silver  dollars  in  Treasury. ..  363,108,461 

Silver  bullion  in  Treasury .  119,277,735  482,386,196 

T otal  specie .  $760, 964, 505. 


Monetary  System  of  Canada  105 


silver  is  taken  at  its  nominal  value  ;  but  as  the  object 
is  to  show  the  very  large  proportion  of  metallic 
money  used  by  us  as  contrasted  with  the  proportion 
used  by  Canada,  we  must  reduce  our  silver  to  its 
gold  basis  of  sixty  cents  to  the  dollar,  in  order  to 
make  a  uniform  basis  for  comparison.  Our  ratio 
would  then  be  $8.48  of  metal  to  $16.40  of  paper, 
as  contrasted  with  the  Canadian  ratio  of  $2.64  of 
metal  to  $16.40  of  paper.  In  computing  the  amount 
of  metallic  money  in  each  country,  only  that  is  taken 
into  the  account  which  is  held  by  the  government 
and  by  the  note-issuing  banks  of  each  country. 

The  fact  that  Canada’s  medium  of  exchange  is 
maintained  at  a  proportionate  cost  of  two-thirds  less 
than  ours  costs  us,  is  evidence  in  itself  that  her  mone¬ 
tary  system  is  in  advance  of  ours  ;  for,  as  has  already 
been  shown,  the  trend  of  improvement  in  money  is 
now  wholly  towards  the  enlargement  of  credit  and 
the  relative  lessening  of  the  use  of  the  precious 
metals.  As  the  proportion  of  metallic  money  to 
credit-money  is  three  times  greater  in  the  United 
States  than  it  is  in  Canada,  this  difference  against  us, 
amounting  to  $378,673,350,  may  be  regarded  as  just 

The  amount  of  gold  held  by  the  national  banks  is  from  the  report 
of  the  Comptroller  of  the  Currency  for  the  year  ending  October  31, 
1893. 

The  population  of  the  United  States  is  estimated  at  sixty-seven 
millions. 


io6  The  Natural  Law  of  Money 


so  much  productive  capital  abstracted  from  industry 
and  converted  into  dead  capital,  for  no  one  can  doubt 
our  ability  to  maintain  as  large  a  proportion  of  credit- 
money  as  Canada,  if  we  will  but  adopt  the  proper 

legislative  measures.  The  abstraction  of  this  large 
sum  from  productive  industry  would  be  justified 
if  it  contributed  to  enhance  the  efficiency  of  our 
medium  of  exchange  ;  as  it  does  nothing  of  the  kind, 
there  is  no  way  in  which  it  can  make  the  least  return 
to  the  people  from  whom  it  is  taken. 

As  all  our  paper-money  is  either  government  or 
national-bank  money — and  this  latter  is  practically 
a  government  issue, — it  does  not  come  into  com¬ 
mercial  use  until  it  is  weighted  with  its  nominal 
value  in  gold  ;  whereas  sixty-eight  per  cent,  of  the 
paper-money  of  Canada  in  commercial  use  represents 
credit.  In  so  far  as  the  business  interests  of  our 
country  are  concerned,  we  have  no  credit-money, 
and  the  only  possible  advantage  derivable  from  the 
use  of  paper-money  is  that  it  is  more  convenient 
than  the  metals.  Whatever  profit  accrues  from  the 
issuance  of  paper-money,  over  and  above  the  amount 
of  metal  held  for  its  redemption,  goes  to  the  govern¬ 
ment,  and  operates  as  a  direct  tax  upon  the  medium 
of  exchange,  and  an  indirect  tax  upon  productive 
industry.  As  no  bank  in  the  United  States  has, 


Monetary  System  of  Canada  107 


aside  from  its  deposits,  a  dollar  of  paper-money 
which  has  not  cost  a  dollar  in  gold  or  its  equivalent, 
it  cannot  afford  to  keep  such  money  idle ;  whereas, 
out  of  the  total  issue  of  eighty-two  million  dollars 
of  paper-money  in  Canada,  the  banks  hold  about 
fifty-six  million  dollars,  which  represent  credit,  and 
which  they  can  issue  to  their  customers  as  required, 
or  can  carry  in  their  vaults  without  cost  to  either 
bank  or  customer. 

A  comparison  of  the  practical  working  of  the  two 
banking  systems,  as  applied  to  agricultural  industry, 
will  illustrate  more  clearly  the  superiority  of  the 
Canadian  system.  Our  western  farmers  and  southern 
planters,  as  a  rule,  have  not  sufficient  capital  to  carry 
on  their  work  throughout  an  entire  year  without  aid  ; 
they  are  consequently  dependent  for  supplies  be¬ 
tween  spring  and  autumn  upon  the  local  store¬ 
keeper  and  the  local  banker.  Few  of  them  indeed 
can  get  through  the  winter  without  using  their 
credit ;  but  when  autumn  comes  and  they  have 
marketed  their  crops,  there  is  an  all-round  settling 
of  accounts.  This  necessarily  calls  for  a  much  larger 
amount  of  money  in  the  autumn  than  is  required  at 
any  other  time  of  year.  As  these  conditions  are 
fixed  by  the  seasons,  it  becomes  necessary  that  all 
business  dependent  upon  or  accessory  to  agriculture 


io8  The  Natural  La  fa  of  Money 


shall  be  made  adaptable  to  it.  The  country  store¬ 
keeper,  recognizing  this  fact,  brings  his  business  into 
conformity  with  it,  and  so  does  the  local  banker,  as 
far  as  he  can  ;  but  as  he  cannot  exercise  his  func¬ 
tions  with  the  same  freedom  as  the  store-keeper  or 
the  Canadian  banker  can,  his  ability  to  serve  his  cus¬ 
tomers  is  greatly  curtailed.  The  Canadian  banker 
makes  his  own  paper-money,  which,  though  in  the 
form  of  bank-notes,  because  of  their  greater  con¬ 
venience,  is  nothing  more  than  checks  upon  his  own 
bank  ;  our  local  banker  is  compelled  to  get  his  money 
from  the  national  government,  and  pay  therefor 
its  full  denominational  value  in  gold  ;  and  this  is  the 
case  whether  his  bank  is  national  or  state. 

The  effect  of  this  difference  is  that  it  costs  the 
Canadian  banker  little  or  nothing  to  keep  an  ample 
supply  of  money  on  hand  awaiting  the  contingent 
needs  of  his  customers,  while  it  costs  our  banker  the 
full  average  rate  of  interest  on  the  money  so  held  ; 
he  is  therefore  obliged  to  keep  his  lendable  money 
constantly  employed  in  order  to  make  it  pay.  Hence, 

when  the  demand  for  money  is  light  at  home,  he 
sends  his  surplus  to  his  corresponding  bank  say  in 
Chicago  or  New  York,  where  he  is  allowed  interest 
upon  it  at  a  rate  of  a  third  to  a  half  the  average  pre¬ 
vailing  rate.  Thus  it  is  that  the  money  of  the  in- 


Monetary  System  of  Canada 


109 


terior  drifts  to  the  great  commercial  cities,  where  it 
can  always  find  employment  in  speculative  ventures, 
if  not  in  legitimate  commerce.  A  million  bushels  of 
wheat  transferred  speculatively  ten  times  will  lock 
up  in  margins  as  much  money  as  the  wheat  is  worth  ; 
and  when  these  transactions  are  all  liquidated,  the 
result  in  wealth  production  to  the  nation  at  large  is 
nil. 

But  it  is  not  necessary  to  own  wheat  in  order  to 
sell  it  speculatively  ;  all  that  is  needed  is  money.  It 
would  tax  the  ingenuity  of  man  to  make  a  money 
less  fitted  for  industrial  purposes  and  more  easily 
drawn  into  these  whirlpools  of  unwholesome  specula¬ 
tion  than  our  government  money  is.  A  money  that 
has  no  local  ties,  no  specific  qualifications  for  definite 
work,  but  that  is  a  “  Jack  of  all  trades,”  will  always 
elude  supervision  ;  and  all  paper-money,  to  be  indus¬ 
trially  productive,  must  have  personal  supervision. 
But  as  this  implies  an  acquaintance  with  the  workers 
and  a  knowledge  of  their  work,  the  area  of  super¬ 
vision  is  naturally  circumscribed  by  individual  limita¬ 
tions.  While  the  bankers  of  the  great  cities  where 
this  money  accumulates  may,  from  their  more  com¬ 
manding  position,  have  a  larger  general  knowledge 
of  the  monetary  needs  of  the  country  than  the  in¬ 
terior  banker  can  have,  in  the  essential  details  of 


no  The  Natural  Law  of  Money 


lending  money  they  are  equally  confined  to  their 
own  field  of  supervision.  What,  for  example,  can  a 
New  York  banker  know  of  the  qualities  of  the  local 
commercial  paper  and  collateral  #  that  is  brought  to 
him  for  re-discount  by  a  Georgia  banker?  Practi¬ 
cally  nothing  ;  he  has  to  take  the  word  of  the  Georgia 
banker,  and  however  highly  he  may  estimate  that 
word,  his  mind  is  still  impressed  with  the  difference 
between  a  loan  made  at  home  upon  his  own  judg¬ 
ment  and  knowledge,  and  one  made  at  a  distance 
upon  the  judgment  of  another  ;  and  this  risk,  whether 
real  or  imaginary,  not  only  limits  the  disposition  to 
lend,  but  raises  the  rate  of  interest  charged. 

The  centralizing  tendency  of  our  money  operates 
as  another  disadvantage  to  the  rural  banker  by  re¬ 
ducing  his  deposit  account  (a  chief  source  of  profit 
to  the  metropolitan  banker),  thus  leaving  the  former 
mainly  dependent  for  his  profits  upon  the  rate  of 
interest  charged.  Hence  we  find  that  the  Dakota 
farmer  pays  two  to  three  per  cent,  per  month  for  the 
money  he  borrows,  while  the  Manitoba  farmer  pays 
three-quarters  of  one  per  cent.  Notwithstanding  the 
fact  that  our  banks  have  relatively  more  capital  than 
the  Canadian  banks  have,  they  are  not  able  to  fully 
meet  the  legitimate  demands  made  upon  them. 
Dotted  all  over  the  West  and  the  South  are  these  in- 


Monetary  System  of  Canada 


1 1 1 


dustrial  banks  at  local  centres,  with  veritable  capital 
and  under  excellent  management,  which  are  yet  un¬ 
able  to  supply  money  that  they  would  gladly  lend  if 
they  could.  Yet  in  the  eastern  States  there  is  a  preva¬ 
lent  belief  that  the  call  for  more  money  which  comes 
from  the  West  and  the  South,  comes  only  from  those 
who  have  nothing  to  give  in  return  for  it ;  for  it  is 
said  :  “  As  money  is  always  seeking  a  level,  by  flowing 
from  points  where  it  is  in  excess  to  points  where  it 
is  in  demand  and  can  find  safe  employment  at  higher 
rates  of  interest,  any  one  in  good  credit,  or  who  has 
the  proper  security  to  offer,  can  always  borrow  what 
he  needs.”  Under  a  natural  monetary  system  this 
would  be  so,  but  under  our  present  artificial  system 
it  is  not  so.  What  better  collateral  security  can 
there  be  than  the  products  of  the  farm  and  of  the 
plantation,  and  who  more  competent  than  the  local 
banker  to  judge  of  the  character  of  such  security? 
Give  him  the  same  freedom  as  the  local  store-keeper, 
and  he  will  serve  his  customers  with  the  same  thor¬ 
oughness  ;  it  will  not  then  be  a  question  with  the 
farmer  as  to  how  he  shall  get  money  to  carry  on  his 
legitimate  undertakings,  but  there  will  be  a  compe¬ 
tition  among  bankers  to  serve  him. 

The  situation  in  Canada  to-day  is  that  every  legiti¬ 
mate  demand  for  money  is  supplied.  To  be  assured 


1 12  The  Natural  Law  of  Money 


of  this  fact  it  is  not  necessary  for  us  to  know  the 
details  of  the  actual  transactions,  for  conclusive  evi¬ 
dence  is  furnished  in  the  published  statements  of 
the  banks,  which  show  that  they  have  at  all  times  a 
surplus  of  bank-notes  in  their  vaults  awaiting  employ¬ 
ment.  While  money  is  just  as  available  at  one  point 
of  the  Dominion  as  at  another,  the  rate  of  interest, 
although  not  the  same  at  all  points,  is  uniformly 
steady,  and  the  difference  in  rate  between  one  point 
and  another  is  due  to  the  difference  in  cost  of  con¬ 
ducting  banking  at  different  points.  The  merchants 
of  Winnipeg  borrow  money  at  about  the  same  rate 
of  interest  as  is  paid  by  the  merchants  and  manufac¬ 
turers  of  Montreal,  the  financial  centre ;  and  the 
farmers  of  the  far  West  pay  about  the  same  rate 
that  is  paid  by  the  farmers  of  Ontario.  The  import¬ 
ance  of  an  ample  supply  of  money  and  a  stable  rate 
of  interest,  in  encouraging  and  aiding  industrial  pro¬ 
ductiveness,  can  hardly  be  over-estimated  ;  for  obvi¬ 
ously  no  intelligent  person  will  risk  his  credit  and 
property  in  industrial  operations  that  cannot  pos¬ 
sibly  yield  him  any  return  within  a  year,  unless  he 
can  know  beforehand  where  he  is  to  get  his  money 
and  how  much  he  is  to  pay  for  it. 

But  how  can  any  one  know  anything,  about  the 
future  of  our  money  ?  It  may  have  the  intrinsic 


Monetary  System  of  Canada  113 


value  of  gold  to-day,  and  before  the  year  expires  be 
down  to  the  price  cf  silver ;  it  may  be  abundant  at 
six  per  cent,  per  annum  when  a  business  operation 
is  undertaken,  and  be  scarce  at  thirty-six  per  cent, 
before  it  is  closed.  These  are  the  conditions  that 
environ  the  workers,  the  wealth-producers  of  the 
United  States,  and  they  are  the  result  of  the  gov¬ 
ernment’s  undertaking  to  be  banker-in-chief  for  the 
nation.  The  demoralizing  tendency  of  such  condi¬ 
tions,  which  stimulate  speculative  ventures  and  dis¬ 
courage  legitimate  industry,  needs  not  be  pointed 
out.  Nor  need  we  be  surprised  that  the  farmers  and 
planters  are  impressed  with  the  belief  that  there  is 
a  moneyed  conspiracy  against  them.  In  the  interest 
of  the  whole  country,  is  it  not  well  that  there  should 
be  a  “ greenback  craze,”  a  “silver  delusion,”  and  a 
continued  agitation,  until  the  most  productive  of  all 
our  industries  is  relieved  from  the  incubus  of  a  false 
monetary  system,  since  these  are  the  surest  signs 
that  there  is  an  evil  that  needs  correction  ? 

If  any  more  evidence  is  needed  to  prove  the  in¬ 
ability  of  our  local  banks  to  perform  their  proper 
functions,  we  have  it  in  the  fact  that  our  western 
grain  dealers  are  obliged  to  resort  to  Canadian  banks 
for  monetary  aid.  It  is  estimated  that  in  the  autumn 

of  1891  more  than  three  million  dollars  were  bor- 
8 


1 14  The  Natural  Law  of  Money 


rowed  from  these  banks  for  use  in  Minnesota  and 
Dakota  alone.  It  may  be  said  that  the  grain-dealers 
resort  to  the  Canadian  banks  only  because  they  can 
borrow  at  a  lower  rate  of  interest  ;  but  is  not  this  of 
itself  a  full  concession  of  our  contention  that  our 
local  banks  are  unable  to  perform  their  functions  ? 
It  is  solely  because  they  are  deprived  of  the  right  to 
issue  their  own  notes  on  the  security  of  the  grain,  as 
the  Canadian  banks  do,  that  they  are  unable  to  com¬ 
pete  with  these  banks.  On  what  better  security 
could  paper-money  be  issued  than  on  a  bill  of  lading, 
or  a  warehouse  receipt  with  accompanying  insurance 
policy,  which  is  the  collateral  given  by  the  grain- 
dealer  ?  The  Canadian  banks  do  not  send  gold  into 
the  United  States  to  perform  these  services;  they 
are  able  to  come  to  our  aid  simply  because  their  im¬ 
plement  for  effecting  exchanges  is  of  higher  refine¬ 
ment  than  ours,  and  it  is  so  by  reason  of  its  having 
less  gold  in  its  composition  and  more  intelligence 
and  integrity. 

The  idea  which  prevails  among  us  that  in  some 
exceptional  sense  Canada  is  backed  up  by  British 
capital,  ignores  the  established  principle  that 
capital  is  not  limited  by  nationality.  The  motives 
that  move  English  capital  are  a  sense  of  security 
and  a  higher  rate  of  interest  or  of  profit  than 


Monetary  System  of  Canada  115 


can  be  realized  at  home,  and  it  will  come  to  the 
United  States  on  these  terms  just  as  readily  as  it 
will  go  to  Canada.  It  was  reported  last  July  (1893) 
that  Canadians  “  loaded  with  English  capital  ”  had 
appeared  at  Duluth  as  buyers  of  grain,  when  prices 
had  broken  in  consequence  of  the  hoarding  of  our 
currency.  Now,  we  venture  the  assertion  that  if,  as 
stated,  Canadians  went  to  Duluth  to  buy  grain,  they 
employed  neither  English  capital  nor  English  credit. 
A  sight  draft  of  the  Bank  of  Montreal  on  its  repre¬ 
sentative  in  New  York  for  the  purchase  money  would 
be  a  satisfactory  form  of  payment  to  the  seller  of 
the  grain  ;  we  may  suppose  the  grain  then  shipped 
via  the  Lakes  and  St.  Lawrence  River  to  Liverpool, 
where  it  would  be  immediately  convertible  into 
English  money ;  the  bank  meantime  being  in  secure 
possession  of  the  grain  by  bill  of  lading.  But  the 
bank  could  realize  upon  the  grain  before  it  arrived 
in  Liverpool ;  it  could  authorize  its  agent  in  New 
York  to  draw  a  sixty-days’  bill  of  exchange  on  its 
agent  in  London,  and  this  it  could  convert  imme¬ 
diately  into  cash  in  New  York,  even  in  time  to  pay 
the  draft  from  Duluth.  It  will  be  seen  that  the  only 
capital  that  appears  in  this  transaction  is  the  grain 
itself,  the  credit  of  the  Bank  of  Montreal  being  the 
medium  of  exchange. 


CHAPTER  VI. 

MONEY,  CAPITAL,  AND  INEREST. 

) 

MONEY  is  not  capital,  nor  is  capital  money, 
though  these  words  are  often,  in  common 
parlance,  used  interchangeably  ;  but  there  is  a  marked 
difference  in  their  signification  which  should  not  be 
lost  sight  of.  Strictly  speaking,  money  is  never  any¬ 
thing  but  the  common  mediurh  oTexchange,  whereas 
capital  is  an  investment,  producing  some  income. 
The  term  capital  is  commonly  applied  to  the  kind  of 
investment  known  as  personal  property,  such  as  the 
bonds  or  stock  of  railroads,  or  the  capital  stock  of  a 
business,  which  may  include  the  money  in  use  at  the 
time  and  the  building  in  which  the  business  is  con¬ 
ducted  ;  but  the  name  is  not  applied  to  land,  nor  to 
real  estate,  nor  to  money  in  general,  though  it  may 
be  applied  to  metallic  money.  When  we  speak  of 
a  capitalist,  the  idea  conveyed  is  not  merely  of  a 
man  of  wealth,  but  of  one  who  has  his  wealth  so  at 
command  that  it  is  readily  convertible  into  money, 

1 16 


Money,  Capital,  and  Interest  117 


or  into  other  forms  of  wealth  through  the  agency  of 
money.  It  is  doubtless  because  of  the  intimate 
relationship  between  capital  and  money,  and  the 
mobility  of  both,  that  the  words  overlap  occasionally, 
even  when  their  significance  is  understood  ;  but  the 
distinction  between  them  becomes  important  when  we 
inquire  into  the  real  purport  and  function  of  money. 

Let  us  suppose  that  A  has  capital  in  England 
which  he  finds  he  can  invest  more  profitably  in  the 
United  States,  and  so  concludes  to  transfer  it  from 
England  to  this  country.  It  is  stock  in  a  brewery, 
paying  him  six  per  cent,  per  annum,  and  he  finds  he 
can  make  a  similar  investment  here  that  will  pay 
him  nine  per  cent.,  so  he  sells  his  English  stock,  re¬ 
ceiving  English  money  therefor  ;  with  this  money  he 
buys  a  bill  of  exchange  on  New  York,  and  with  the 
American  money  received  upon  it  here  he  pays  for 
the  American  brewery  stock.  In  this  example,  no 
English  money  passes  from  England  to  the  United 
States — the  thing  transferred  is  capital.  The  Eng¬ 
lish  money  which  bought  the  bill  of  exchange  re¬ 
mains  in  England,  and  the  American  money  which 
paid  for  the  American  brewery  stock  remains  in 
America,  and  goes  immediately  back  into  circulation 
to  continue  the  performance  of  similar  services :  this 
is  all  that  money  ever  does. 


1 1 8  The  Natural  Law  of  Money 


If,  instead  of  a  bill  of  exchange,  gold  had  been 
sent  to  America,  it  would  have  been  a  transfer  of 
capital.  Bills  of  exchange,  though  not  money  in  the 
strict  sense,  may  not  inappropriately  be  termed  the 
paper-money  of  international  commerce,  as  they  per¬ 
form  in  commercial  dealings  between  different  coun¬ 
tries  precisely  the  kind  of  service  that  paper-money 
performs  for  people  of  one  country.  Drawn  mainly 
against  exports  of  commodities  which  thereby  be¬ 
come  security  for  the  payment  of  these  Bills  in  gold 
(that  metal  being  now  the  common  measure  of  value 
in  international  commerce)  they  economize  the  use 
of  gold,  reducing  the  amount  to  one  or  two  per  cent, 
of  what  would  otherwise  be  required. 

There  is  a  limit  to  the  amount  of  money  that  may 
be  used  productively,  but  there  is  no  limit  to  the 
amount  of  capital  that  may  be  used  productively  ; 
the  use  of  money  is  limited  by  the  number  of  trans¬ 
fers  to  be  made ;  the  use  of  capital  has  no  limit 
short  of  the  exhaustion  of  nature’s  productive  re¬ 
sources — which  is  practically  no  limit. 

In  the  old  world  a  vast  amount  of  floating  capital 
has  accumulated  from  past  ages;  but  in  the  United 
States  the  supply  of  capital  is  insufficient  for  the 
employment  of  all  our  labor  and  the  development 
of  our  immense  natural  resources  ;  the  effect  of  these 


Money,  Capital,  and  Interest 


1 19 


conditions  is  to  make  the  normal  rate  of  interest 
much  higher  with  us  than  it  is  in  Europe.  In  lend¬ 
ing  money,  the  rate  of  interest  is  influenced,  first,  by 
the  degree  of  safety  with  which  the  loan  may  be 
made,  and  secondly,  by  the  scarcity  or  abundance 
of  money  at  the  time  the  loan  is  made ;  but  under¬ 
lying  these  two  changing  conditions  is  the  relative 
proportion  of  capital  to  opportunities  for  profitable 
investment  of  capital,  which  is  the  governing  condi¬ 
tion  in  fixing  what  may  appropriately  be  termed  the 
normal  rate  of  interest ;  this  normal  rate  is  the  more 
permanent  rate  which  appears  in  first-class  long-time 
loans.  These  three  factors — the  sense  of  safety,  the 
supply  of  money  as  proportioned  to  the  need  for 
money,  and  the  supply  of  capital  as  proportioned  to 
the  need  for  capital — dominate  and  govern  the  rate 
of  interest. 

All  attempts  to  regulate  interest  artificially  by 
legislative  enactments  which  ignore  these  natural 
conditions,  are  but  interferences  which  tend  to  lower 
the  standard  of  business  integrity,  to  advance  and 
make  unsteady  the  rate  of  interest,  and  to  limit 
productiveness. 

Every  one  knows  that  the  rate  of  interest  is 
affected  by  a  sense  of  safety  or  of  distrust  on 
the  part  of  the  lenders  and  investors  of  money ; 


120  The  Natural  Law  of  Money 


but  that  it  is  differently  affected  by  money  and 
by  capital  is  not  so  generally  realized.  Indeed, 
much  of  the  confusion  of  thought  in  regard  to  money 
and  interest  arises  from  the  want  of  a  clear  percep¬ 
tion  of  the  differing  functions  of  money  and  of 
capital.  It  is  a  very  common  mistake  to  suppose 
that  more  money  is  needed  where  it  is  really  capital 
that  is  needed.  All  peoples  have  it  in  their  power 
to  supply  themselves  amply  with  a  money  of  such 
efficiency  as  is  best  adapted  to  the  stage  of  their 
industrial  development ;  but  the  same  cannot  be 
said  of  capital,  for  capital  is  wealth,  and  the  accumu¬ 
lation  of  wealth  is  a  slow  process  even  in  a  country  as 
rich  in  natural  resources  as  ours.  On  the  other  hand, 
money,  as  now  constituted,  may  be  nine-tenths  credit , 
and  all  that  is  required  of  a  people  in  order  to  have 
an  ample  supply  of  efficient  money  is  an  intelligent 
recognition  of  this  fact,  and  the  formulation  of  its 
monetary  laws  in  accordance  with  it. 

Now  let  us  apply  these  principles  to  the  question 
of  interest.  If  we  may  assume  all  transactions  in 
money  to  be  equal  in  point  of  safety,  it  may  be 
stated  as  a  general  principle  that  the  more  permanent 
or  normal  rate  of  interest  is  regulated  by  the  volume 
of  capital,  and  that  its  temporary  fluctuations  are 
produced  by  abnormal  fluctuations  in  the  volume  of 


Money,  Capital,  and  Interest  121 


money:  if  the  quantity  of  money  in  circulation  is 
less  than  is  actually  needed,  the  rate  of  interest  will 
be  above  the  normal  level ;  if  it  is  more  than  is 
needed,  the  rate  will  be  below.  Hence  it  follows  as 
a  corollary  that  if  a  people  can  keep  the  volume  of 
its  money  just  equal  to  the  needs,  the  rate  of  interest 
will  be  just  equal  to  the  normal  rate.  Hence  it 
follows  also  that  temporary  and  violent  fluctuations 
in  the  rate  of  interest,  which  are  so  common  with  us 
and  so  disturbing  to  individual  enterprise,  would  not 
occur  if  the  volume  of  money  were  self-regulative, 
as  it  would  be  if  the  supplying  of  the  money  were 
left,  as  is  the  supplying  of  commodities,  entirely  to 
individual  action. 

If  we  may  now  assume  the  disturbances  to  inter¬ 
est,  proceeding  from  abnormal  fluctuations  in  the 
volume  of  money,  to  be  eliminated,  the  rate  of 
interest  will  then  be  affected  only  by  capital,  and 
will  be  a  steady,  though  not  a  stationary  rate ;  it 
will  fall  with  the  increase  of  capital  and  rise  with  its 
decrease ;  but  as  changes  in  the  volume  of  capital 
take  place  slowly,  changes  in  the  rate  of  interest 
will  be  correspondingly  slow.  The  rate  of  interest 
will  not  be  the  same  in  all  parts  of  the  country,, 
because  the  proportion  of  capital  to  profitable  in¬ 
vestment  of  capital,  is  not  the  same  everywhere; 


122 


The  Natural  Law  of  Money 


but  as  the  movement  of  capital  is  always  from  points 
of  less  profit  to  points  of  greater  profit  and  equal 
safety,  there  is  a  general  and  constant  tendency 
towards  an  equalization  of  the  rate  of  interest ;  and 
as  in  our  country  there  is  a  constant  accretion  of 
capital,  the  natural  tendency  of  the  rate  of  interest 
is  downward. 

Another  point  to  be  considered  in  this  connection 
is  that  there  is  a  fixed  relation  between  the  volume 
of  capital  and  the  volume  of  money :  where  there  is 
much  capital,  more  money  will  be  needed  than  where 
there  is  little,  for  the  number  of  transactions  will  be 
greater,  and  the  volume  of  money  must  be  exactly 
sufficient  to  accomplish  all  the  exchanges  required, 
or  productiveness  will  be  diminished ;  additional 
money  without  additional  capital  can  add  nothing 
to  wealth  production. 

As  an  illustration,  let  us  take  the  fixed  property 
of  a  railroad  as  analogous  to  capital,  and  its  rolling- 
stock  as  analogous  to  money.  It  will  be  readily 
seen  that  when  the  number  of  cars  is  exactly  equal 
to  the  traffic,  the  earning  power  of  the  road,  in  so 
far  as  it  is  dependent  upon  car  equipment,  is  at  its 
maximum.  Similarly,  when  money  is  exactly  equal 
to  the  exchanges  to  be  made,  the  earning  power  of 
capital,  in  so  far  as  it  is  dependent  upon  money,  is 


Money,  Capital,  and  Interest 


123 


at  its  maximum.  What  would  be  thought  of  a  rail¬ 
road  company  that  should  increase  its  car  equip¬ 
ment  beyond  the  possible  requirements  of  its  traffic  ? 
Yet  this  is  precisely  the  character  of  our  work  in 
enlarging  the  volume  of  money  regardless  of  capital ; 
nay  more,  to  further  this  purpose  we  have  abstracted 
an  immense  amount  of  capital  from  productive  in¬ 
dustry,  thus  at  one  stroke  increasing  the  volume  of 
money  and  lessening  the  possible  need  for  it ;  by  so 
doing  we  have  placed  ourselves  in  the  position  of  a 
railway  company  that  sells  a  portion  of  its  road-bed 
in  order  to  buy  an  excess  of  rolling-stock. 

By  making  a  money  of  doubtful  stability,  we 
drive  capital  away  from  our  country,  because  with 
an  indefinite  measure  of  values  it  is  impossible  for 
foreign  capitalists  to  calculate  the  outcome  of  their 
investments  here.  If  Congress  should  enact  that 
twenty  inches  shall  be  the  equivalent  of  thirty-six 
inches,  so  that  measurements  made  by  a  yard-stick 
of  either  length  would  be  an  equivalent  legal  tender, 
such  an  act  would  be  no  more  absurd  than  the 
monetary  law  which  declares  a  silver  dollar  to  be  the 
equivalent  in  value  of  a  gold  dollar.  Definite  stand¬ 
ards  of  weights  and  measures  are  absolutely  essen¬ 
tial  to  trade  and  commerce,  and  a  definite  money- 
measure  is  equally  so. 


124  The  Natural  Law  of  Money 


Within  the  twenty  years  following  the  close  of  our 
civil  war  we  had  a  remarkable  example  of  the  bene¬ 
ficial  effects  produced  by  the  introduction  of  foreign 
capital  into  a  country.  Our  government  having  estab¬ 
lished  its  power  to  maintain  itself,  had  inspired  the 
world  with  confidence  in  us,  and  this  confidence  was 
reinforced  and  our  credit  greatly  strengthened  by 
the  Act  of  January  14,  1875,  which  authorized  the 
resumption  of  specie  payment  on  January  1,  1879. 
Capital  began  to  come  to  us  soon  after  peace  was 
restored,  but  after  the  passage  of  the  Resumption 
Act  an  increasing  inflow  gave  decided  impetus  to  all 
our  industries ;  this  was  more  especially  manifested 
by  the  yearly  increase  in  railway  mileage.  The 
number  of  miles  of  railway  built  in  1875  was  seven¬ 
teen  hundred  and  eleven,  which  was  nearly  doubled 
in  the  following  year,  and  in  the  year  appointed  for 
resumption  there  were  built  four  thousand  seven 
hundred  and  forty-six  miles,  while  in  1882,  the 
increase  in  construction  had  risen  to  eleven  thousand 
five  hundred  and  sixty-eight  miles.  Resumption 
had  actually  taken  place  in  1878  ;  the  mere  announce¬ 
ment  of  our  intention  to  put  our  money  on  a  sound 
metallic  basis  had  brought  capital  to  us  in  such 
abundance  that  resumption  was  not  only  made  easy, 
but  the  normal  rate  of  interest  was  reduced.  The 


Money,  Capital,  and  Interest 


125 


normal  rate  in  the  city  of  New  York,  which  had 
formerly  been  six  per  cent,  per  annum,  dropped  to 
four  per  cent.,  and  a  corresponding  decline  took 
place  in  other  parts  of  the  country.  This  remark¬ 
able  reduction  in  the  rate  of  interest  occurred  within 
a  space  of  two  or  three  years,  and  is  explainable 
only  on  the  ground  of  a  large  influx  of  foreign 
capital,  as  it  was  not  possible  for  us  to  have  created 
in  so  short  a  time  sufficient  new  capital  to  produce 
so  great  a  change. 

The  year  of  actual  resumption  (1878)  was  also  the 
year  in  which  we  entered  upon  that  anomalous  silver 
legislation,  which  has  since  so  greatly  disturbed  the 
confidence  inspired  by  the  Act  of  Resumption ;  but 
as  in  that  year  the  market  value  of  silver  was  not 
much  below  our  legal  ratio,  and  as  the  decline  that 
had  taken  place  was  supposed  to  be  temporary, 
being  attributed  mainly  to  the  action  of  Germany 
in  demonetizing  silver  in  1871,  the  evil  effect  of  that 
legislation  was  not  immediately  felt.  Not  until  it 
became  apparent  that  silver  was  declining  from 
increasing  production,  as  well  as  from  demonetiza¬ 
tion,  was  confidence  at  all  disturbed,  and  even  then 
no  serious  apprehension  was  felt,  because  as  yet 
nothing  had  occurred  in  the  history  of  the  United 
States  to  justify  the  least  fear  in  any  mind  that  our 


126  The  Natural  Law  of  Money 


government  would  permit  a  law  to  continue  in  force 
which  endangered  the  stability  of  its  money. 

In  view  of  the  discredit  into  which  our  country 
has  recently  been  brought  by  mistaken  legislation  in 
reference  to  silver,  it  is  of  the  first  importance  that 
every  American  should  understand  and  appreciate 
that  the  United  States,  from  its  beginning  as  a 
nation  down  to  the  present  silver  legislation,  has 
held  a  record  for  monetary  integrity  not  surpassed 
by  that  of  any  nation  in  the  world.  In  the  found¬ 
ing  of  the  Republic  and  in  the  framing  of  the 
Federal  Constitution,  there  was  no  subject  that 
received  more  solicitous  consideration  than  that  of 
making  our  measure  of  values  honest  and  stable. 
Impoverished  as  the  country  was  at  that  time  by  the 
drain  of  along  war,  no  hint  of  compromising  this  prin¬ 
ciple  was  ever  uttered  in  the  national  councils ;  and 
as  the  foundation  was  laid,  so  the  superstructure 
was  built. 

When  in  1834  the  legal  ratio  of  silver  and  gold 
was  changed  from  fifteen  to  one  to  sixteen  to  one, 
the  object  was  to  restore  gold  to  the  circulation,  as 
it  was  undervalued  in  the  first  ratio  and  had  been 
practically  out  of  circulation  since  1792.  Although 
under  the  ratio  of  sixteen  to  one  the  difference  in 
the  market  value  of  the  two  metals  was  but  slight. 


Money,  Capital,  and  Interest 


127 


this  difference  had  nevertheless  the  effect  of  dis¬ 
placing  the  undervalued  metal,  which  in  this  case 
was  silver.  There  is  but  one  way  in  which  the 
two  metals  can  be  held  in  circulation  at  a  parity 
under  any  ratio  that  may  be  adopted,  and  that  is 
to  close  the  mints  to  the  free  coinage  of  the  cheaper 
metal  and  make  it  redeemable  in  the  other.  In 
referring  again  to  this  phase  of  our  subject,  our  ob¬ 
ject  is  to  call  attention  to  the  fact  that  in  changing 
the  legal  ratio  of  the  precious  metals  in  1834,  due 
regard  was  paid  to  preserving  the  stability  of  the 
national  money.  Although  in  adjusting  the  ratio 
(which  is  always  difficult  to  do  with  values  that  are 
never  stationary),  silver  went  out  of  circulation  and 
gold  came  in,  the  change  was  so  gradual  that  it  did 
not  sensibly  affect  the  monetary  standard. 

Clearness  of  definition  as  to  the  measure  of  values 
has  characterized  the  monetary  legislation  of  the 
United  States  down  to  the  time  that  the  silver 
question  made  its  appearance  in  politics.  Even  the 
civil-war  period  of  specie  suspension  cannot  be 
regarded  as  an  exception  to  this  rule ;  the  issuance 
of  the  greenbacks  did  not  demonstrate  that  the 
national  sense  of  honesty  was  growing  weak,  for 
there  was  no  indefiniteness  in  the  legislation  that 
put  that  money  into  circulation ;  the  terms  of  re- 


128  The  Natural  Law  of  Money 


demption  were  plainly  stated  on  the  bills  themselves, 
so  that  the  holder  was  just  as  competent  to  judge 
of  their  character  and  value  as  was  the  government 
that  issued  them.  Nobody  had  occasion  to  ask,  as 
is  now  asked  about  our  silver  money :  What  is  the 
purpose  of  the  government  in  reference  to  it? 
Immediate  redemption  was  not  then  deemed  pos¬ 
sible,  but  all  means  were  used  that  were  practicable 
under  the  stress  of  civil  war  to  make  a  stable  money. 
It  was  made  exchangeable  for  government  bonds 
paying  six  per  cent,  interest  in  coin,  and  this  feature 
of  the  Act  of  1862  testifies  to  the  honesty  of  its 
framers,  and  to  their  intelligent  solicitude  that  the 
money  should  remain  in  circulation  no  longer  than 
the  exigency  required.  Their  mistake  was  in  making 
the  greenbacks  a  legal  tender,  though  they  doubt¬ 
less  believed,  as  we  do  not,  that  this  feature  would 
contribute  to  promote  the  stability  of  the  money. 

In  order  properly  to  compare  the  Greenback  Act 
of  1862  with  our  late  silver  legislation,  we  must  keep 
distinctly  in  mind  that  the  act  was  passed  as  a 
means  of  raising  money  to  meet  the  extraordinary 
expenditures  of  the  war.  There  was  no  pretence  of 
making  a  better  money  than  we  already  had  ;  it  was 
in  fact  a  borrowing  act,  and  was  not  regarded  by  its 
authors  as  in  any  true  sense  a  monetary  act,  nor 


Money,  Capital,  and  Interest 


129 


was  there  any  misunderstanding  at  home  or  abroad 
as  to  its  character  in  that  respect.  Nevertheless 
this  act  was  the  beginning  and  the  source  of  the 
monetary  delusions  that  subsequently  took  posses¬ 
sion  of  the  public  mind — delusions  which  gave  us  a 
Greenback  Party,  followed  in  turn  by  a  Silver  Party  ; 
but  for  this  misdirection  of  the  public  thought,  the 
framers  of  the  act  cannot  be  held  responsible ;  they 
realized  fully  the  imperfect  character  of  the  money 
they  were  issuing,  and  in  making  it  exchangeable 
for  government  bonds  they  did  the  best  that  could 
be  done  to  secure  its  retirement  from  circulation  so 
soon  as  the  people  should  be  able  to  replace  it  by  a 
more  stable  and  efficient  money.  That  it  was  a 
serious  mistake  to  make  the  greenbacks  a  legal 
tender,  we  need  not  doubt,  for  it  could  have  no 
other  effect  than  to  lower  the  credit  of  the  United 
States,  and  to  prompt  the  withdrawal  of  capital 
from  the  country.  We  may  well  believe  that  if  the 
money  had  rested  solely  on  the  credit  of  the  nation, 
it  would  not  have  declined  to  thirty-five  cents  on 
the  dollar,  as  it  did  in  July,  1864.  The  issuance  of 
mandatory  money  is  in  its  essence  a  declaration  of  * 
bankruptcy  ;  how  then  can  it  strengthen  the  borrow¬ 
ing  power  of  a  state  ? 


CHAPTER  VII. 

MANDATORY  MONEY  AND  FREE  MONEY. 

THERE  is  no  reason  to  doubt  that  it  was  the 
intention  of  the  framers  of  the  Constitution 
to  withhold  from  Congress  the  power  of  making 
paper-money  a  legal  tender  ;  but  in  order  to  appre¬ 
ciate  properly  their  attitude  on  this  point,  we  must 
try  to  look  upon  money  through  their  eyes.  They 
had  not  the  remotest  idea  that  their  country  had 
entered  upon  a  stage  of  civilization  that  made  the 
use  of  paper-money  imperative  ;  it  was  therefore  not 
with  any  thought  of  supplying  the  people  with  a 
paper-currency  that  the  question  was  discussed  in 
the  convention  that  framed  the  Federal  Constitu¬ 
tion.  It  was  the  borrowing  clause  of  the  Con¬ 
stitution  that  elicited  debate ;  there  was  but  little 
difference  of  opinion  as  to  the  adjustment  of  the 
money  clauses ;  the  coinage  and  the  general  regula¬ 
tion  of  money  were  reserved  to  Congress,  and  the 


130 


Mandatory  Money  and  Free  Money  131 


States  were  prohibited  from  making  anything  but 
gold  and  silver  a  tender  in  payment  of  debts. 

In  the  opinion  of  the  Fathers  of  the  Republic  coin 
was  the  only  money  that  the  people  needed ;  paper 
was  but  an  incident,  a  make-shift  that  might  be  used 
to  bridge  over  periods  of  scarcity  of  coin ;  it  was  in  no 
sense  regarded  as  a  permanent  medium  of  exchange. 
It  was  chiefly  as  a  ready  means  of  raising  funds  for 
the  State  in  emergencies  that  the  question  of  paper- 
money  was  discussed  by  the  members  of  the  Conven¬ 
tion,  and  we  must  look  at  it  from  their  standpoint 
if  we  would  understand  their  action.  They  doubt¬ 
less  considered  it  the  duty  of  government  to  supply 
the  money  and  to  regulate  its  value ;  had  a  paper 
circulation  been  contemplated,  discussion  upon  this 
point,  followed  by  the  embodiment  in  the  Constitu¬ 
tion  of  specific  rules  for  its  regulation,  would  have 
been  inevitable.  What  they  discussed  was  paper- 
money  as  a  fiscal  expedient ;  they  had  already  had 
experience  of  paper-money,  and  they  were  not  only 
greatly  impressed  by  the  injustice  it  wrought  to 
individuals,  but  had  also  become  convinced  that  it 
closed  more  avenues  of  financial  resource  than  it 
opened. 

Upon  these  grounds  alone,  they  withheld  from 
Congress  the  right  to  issue  paper-money,  for  it 


132  The  Natural  Law  of  Money 


was  that  right  that  was  stricken  from  the  Constitu¬ 
tion, — paper-money  as  they  understood  it,  not  as  we 
understand  it.  To  them  “bills  of  credit”  and 
“  paper-money  ”  were  synonymous  terms  which 
represented  what  is  known  to  us  as  non-convertible 
legal-tender  paper,  and  the  mandatory  character  of 
this  money  was  so  identified  in  the  public  mind  with 
these  terms  that  it  was  not  considered  safe  to  let 
the  harmless  word  bills  stand,  lest  it  might  suggest 
and  lead  to  an  issuance  of  such  money.  Madison’s 
suggestion  that  it  might  be  “  sufficient  to  prohibit 
the  making  the  bills  a  tender  ”  received  no  support ; 
another  member  declared  he  “  had  rather  reject  the 
whole  plan  [of  the  Constitution]  than  to  retain  the 
three  words  and  emit  bills."  The  exercise  of  the  man¬ 
datory  power  was  deemed  necessary  to  regulate  the 
value  of  the  money,  whether  paper  or  metallic ;  this 
was  the  political  doctrine  of  that  age,  accepted  by 
every  government  in  Europe.  The  opposition  to  the 
striking  out  of  the  words  “and  emit  bills,”  which 
gave  rise  to  the  debate  in  the  Convention,  proceeded 
from  a  reluctance  to  deprive  the  new  government  of 
the  exercise  of  a  power  which  was  recognized  by  all 
as  a  legitimate  attribute  of  sovereignty ;  as  it  was 
expressed  by  Mr.  Randolph,  notwithstanding  his 
antipathy  to  paper-money,  he  “  could  not  agree  to 


Mandatory  Money  and  Free  Money  133 


strike  out  the  words,  as  he  could  not  foresee  all  the 
occasions  that  might  arise  ”  for  the  exercise  of  that 
power.  Antipathy  to  paper-money  was  the  control¬ 
ling  sentiment  of  the  Convention,  moved  as  the 
members  were  by  the  injustice  it  had  wrought;  if 
they  had  seen  that  its  legal-tender  quality  was  the 
poison  that  produced  these  evil  effects,  it  is  likely 
that  Mr.  Madison’s  proposition  to  retain  the  word 
bills ,  but  prohibit  the  making  them  a  tender, 
would  have  met  with  approval.  In  view  of  the  fact 
that  in  their  day  the  right  of  a  state  to  issue  man¬ 
datory  paper-money  was  not  questioned,  no  act  of 
the  Fathers  of  the  Republic  marks  more  decisively 
their  high  standard  of  political  virtue  than  the  with¬ 
holding  from  Congress  the  right  to  issue  such 
money. 

The  erroneous  belief  that  it  is  a  duty  of  the  State 
to  regulate  the  value  of  money  is  the  parent  of  all 
the  vicious  monetary  legislation  in  the  world ;  born 
of  an  old  superstition  that  a  mysterious  power  of 
sovereignty  imparted  to  coin  an  added  value,  it  has 
obstructed  the  growth  of  money  at  every  stage  of 
advancement.  In  the  effort  to  construct  a  single 
money  -  standard  from  two  independent  money- 
metals,  the  law  of  natural  displacement  is  ignored, 
and  the  failure  to  produce  the  result  aimed  at,  leads 


134  The  Natural  Law  of  Money 


logically  to  the  expulsion  of  one  metal  from  mone¬ 
tary  use,  and  thus  disturbs  in  both  the  element  of 
stability  which  is  so  essential.  Bi-metallism,  mono¬ 
metallism,  fiat  money,  and  the  notion  that  the 
supplying  of  money  is  a  function  of  government,  are 
all  the  logical  outcome  of  the  false  premise  that  the 
State  can  impart  value  to  money.  That  this  delu¬ 
sive  doctrine  should  have  been  accepted  in  an  age 
when  it  was  believed  that  the  king’s  touch  would 
cure  disease,  is  not  remarkable ;  but  that  it  should 
have  a  host  of  supporters  in  .  this  age  of  steam,  of 
electricity,  and  of  practical  common-sense,  is  strange 
indeed.  Why  we  of  the  United  States,  who  deny 
that  divinity  doth  hedge  a  king,  and  who  aim  to 
restore  sovereignty  to  its  true  source — the  people, — 
should  still  cherish  this  worn  shred  of  monarchical 
prerogative  which  has  no  possible  application  of 
usefulness,  is  difficult  to  explain. 

No  government  has  ever  yet  succeeded  in  holding 
silver  and  gold  at  any  fixed  ratio  of  value  ;  the  efforts 
made  to  accomplish  this  object  have  only  tended  to 
disturb  natural  relative  values,  to  impair  the  effi¬ 
ciency  of  money,  and  to  retard  industrial  progress. 
A  fiat  monetary  law,  whether  applied  to  the  metals 
or  to  paper,  is  not  in  harmony  with  the  genius  of  our 
government,  but  belongs  to  the  past,  when  govern- 


Mandatory  Money  and  Free  Money  135 


ment  was  rule.  “  The  laws  of  a  country  ought  to 
be  the  standard  of  equity,  and  calculated  to  impress 
on  the  minds  of  the  people  the  moral  as  well  as  the 
legal  obligation  of  political  justice.  But  tender-laws 
of  any  kind  operate  to  destroy  morality  and  to 
dissolve  by  the  pretence  of  law  what  ought  to  be 
the  principle  of  law  to  support — reciprocal  justice 
between  man  and  man.”  1  There  is  no  more  use  for 
a  special  law  to  compel  the  receiving  of  money  than 
there  is  for  one  to  compel  the  receiving  of  wheat  or 
of  cotton.  The  common  law  is  as  adequate  for  the 
enforcement  of  contracts  in  the  one  case  as  in  the 
other ;  nor  from  the  transactions  of  trade  and  com¬ 
merce  can  one  be  cited  where  a  legal-tender  law  is 
of  the  least  utility.  It  holds  its  place  simply  from 
habit  and  custom — a  custom  that  would  be  more 
honored  in  the  breach  than  the  observance. 

It  must  be  admitted  that,  at  first  sight,  the  idea 
of  having  one  monetary  standard  rather  than  two  is 
beguiling,  but  a  little  consideration  will  show  that 
this  idea  proceeds  directly  from  the  monarchical  con¬ 
ception  of  government,  which  is  paternal,  and  which 
assumes  that  the  people  are  not  quite  competent 
to  manage  their  own  affairs.  It  overlooks  natural 
differences  in  money  and  ignores  a  fundamental  law 

1  Thomas  Paine. 


1 


136  The  Natural  Law  of  Money 


which  requires  that,  for  efficient  service,  money  must 
be  acceptable  to  the  people  using  it,  and  adaptable 
to  their  occupations.  If  we  would  understand  the 
nature  of  money,  we  must  get  rid  of  the  idea  that 
mysterious  complexities  are  inherent  in  it  ;  we  must 
realize  that  it  is  but  an  implement  of  exchange,  and 
no  more  sacred  than  the  pound  weight  or  the  bushel 
measure.  These  complexities  have  so  long  obscured 
the  real  nature  and  function  of  money  that  they 
have  come  to  be  regarded  by  not  a  few  as  principles, 
whereas  they  are  only  obstructions  to  the  progress 
of  natural  law.  What  is  the  Gresham  law  but  a 
protest  against  artificial  obstruction  ?  If  there  had 
been  no  bi-metallism  we  should  never  have  heard  of 
a  Gresham  law ;  if  there  had  been  no  legal-tender 
enactment  we  should  never  have  heard  either  of  bi¬ 
metallism  or  mono-metallism,  and  when  the  delusive 
idea  of  regulating  the  value  of  money  by  legal  enact¬ 
ment  shall  be  dismissed,  we  shall  have  heard  the 
last  of  legal  tender. 

Free-metallism  is,  therefore,  what  is  needed.  Our 
money  must  be  free  before  it  can  yield  to  the  nation 
its  highest  measure  of  productiveness.  If  the  State 
of  Colorado  wants  silver  money,  it  is  to  the  interest 
of  the  other  States  that  she  should  have  it.  If  the 
South  could  have  the  free  silver  she  desires,  her 


Mandatory  Money  and  Free  Money  137 


industries  would  doubtless  greatly  profit  thereby. 
It  is  through  individual  selection,  individual  enter¬ 
prise  and  competition,  that  we,  as  a  people,  now 
excel  in  industrial  appliances,  and  it  is  only  by  these 
means  that  we  shall  ever  excel  in  money.  Indus¬ 
trial  implements  vary,  and  individual  opinions  may 
differ  as  to  their  respective  merits,  but  the  final 
test  of  each  implement  is  its  adaptability  for  pro¬ 
ductiveness,  and  the  necessity  to  secure  the  best  is 
constantly  felt  by  the  industrial  producer.  The 
negro  has  signified  his  preference  for  silver  dollars 
over  paper  or  gold  money,  and  we  may  be  sure  his 
industry  will  be  stimulated  by  letting  him  have  the 
money  of  his  choice.  Silver  is  the  choice  of  a  par¬ 
tially  civilized  race,  which  is  shown  also  by  the 
Berbers  of  Algeria,  who,  in  exchanging  at  Algiers 
notes  of  the  Bank  of  France,  receive  and  carry  to 
their  homes  in  the  interior  the  greatly  depreciated 
silver  in  preference  to  the  more  portable  gold.  To 
these  people  bulk  is  a  desideratum  ;  therefore,  silver 
is  the  money  of  their  choice  and  satisfies  their  sense 
of  security,  which  is  always  essential  to  the  efficiency 
of  money.  Individual  preferences,  however  mis¬ 
taken,  are  not  crimes  to  be  punished  nor  vices  to  be 
prohibited  by  coercive  legislation.  They  stimulate 
enterprise,  and  whatever  errors  of  judgment  they 


138  The  Natural  Law  of  Money 


may  contain,  time  and  experience  will  correct.  With 
free  scope  and  the  incentive  of  profit,  the  monetary 
movement  must  be  forward ;  it  cannot  be  otherwise. 

If  we  will  look  at  the  silver  question  from  the 
standpoint  of  the  natural  law  of  money,  we  shall  find 
that  it  is  a  mere  struggle  as  to  whether  silver  or  gold 
shall  be  the  monetary  standard  of  the  nation.  Profes¬ 
sedly  both  parties  advocate  bi-metallism,  but  bi¬ 
metallism  is  an  impossibility ;  it  assumes  that  the 
two  metals  can  be  retained  in  circulation  and  held  at 
a  parity  by  the  mandatory  authority  of  the  state, 
which,  as  we  have  seen,  cannot  be  done.  In  order 
to  hold  them  at  a  parity,  the  cheaper  metal  must  be 
redeemable  in  the  other ;  the  standard  is  thus  prac¬ 
tically  reduced  to  one  metal. 

Now,  as  under  bi-metallism  one  metal  must  be 
redeemable  by  the  other  to  hold  them  at  a  parity,  of 
what  possible  monetary  service  is  the  metal  that 
has  to  be  redeemed  ?  It  is  no  longer  money  ;  it  is 
capital.  Paper  is  much  cheaper,  and  is  preferable  to 
the  displaced  metal,  for  it  better  fulfils  the  func¬ 
tions  of  money.  It  cannot  be  said  that  the  silver 
held  by  our  government  serves,  to  maintain  the 
credit  of  the  government’s  paper  money ;  indeed  it 
is  the  fear  that  the  paper  may  be  redeemed  in  silver 
that  has  shaken  the  public  confidence  in  it.  Yielding 


Mandatory  Money  and  Free  Money  139 


no  service,  the  silver  is  worse  than  useless  where 
it  is ;  for  it  is  capital  taken  from  the  people,  and 
thereby  withheld  from  productive  industry. 

As  bi-metallism  is  impossible,  and  as  redeeming 
one  metal  with  the  other  is  a  waste  of  capital,  there 
remain  but  two  courses  to  be  considered  :  first,  the 
adoption  of  one  money-metal  to  the  exclusion  of 
the  other,  that  is,  mono-metallism  ;  and  second,  the 
repeal  of  all  legal-tender  laws,  so  that  both  metals 
may  circulate  independently.  This  latter  is  the  only 
way  in  which  the  two  metals  can  be  brought  into 
efficient  monetary  service  at  the  same  time  in  one 
country.  But,  it  may  be  asked,  would  not  this  leave 
other  commodities  as  well  as  silver  and  gold  free  to 
come  into  monetary  use  ?  It  certainly  would,  but 
their  use  would  be  governed  by  the  law  of  displace¬ 
ment,  which  admits  a  new  money  only  on  condition 
that  it  is  more  efficient  than  that  already  in  use. 
Under  this  natural  law,  it  is  no  more  necessary  for 
a  government  to  prescribe  the  kind  of  money  that 
shall  be  used,  than  it  is  to  prescribe  to  the  house¬ 
keeper  the  use  of  the  lucifer  match  in  place  of  the 
flint  and  tinder-box,  or  to  the  railroad  man  the  use 
of  steel  rails  in  place  of  iron,  or  to  the  farmer  the  use 
of  the  plowshare  in  place  of  the  forked  stick. 

By  a  law  superior  to  any  that  man  can  formu- 


140  The  Natural  Law  of  Money 


late,  it  has  been  a  condition  of  industrial  civilization 
that  no  advance  is  possible  without  a  medium  of 
exchange,  and  this  condition  applies  to  man  indi¬ 
vidually,  not  to  man  in  mass,  for  it  is  the  individual 
alone  who  is  competent  to  supply  this  medium.  A 
proposition  made  recently  in  the  Senate  of  the  United 
States  that  aluminium  shall  be  made  a  money- 
metal  by  act  of  Congress,  indicates  the  prevalence 
among  our  people  of  an  unquestioning  belief  in  the 
supernatural  power  of  legislation.  The  idea  is  simply 
utopian,  for  it  is  not  in  the  power  of  Congress  to 
legislate  any  metal,  except  as  token-money,  into 
general  monetary  use.  A  new  metal  may  be  used 
locally  as  money  ;  but  it  can  come  into  general  circu¬ 
lation  only  through  the  same  slow  process  of  natural 
selection  that  has  made  silver  and  gold  the  only 
money-metals  of  the  civilized  world  ;  it  must  establish 
its  superior  fitness  over  one  or  both  of  these  metals, 
and  it  must  have  a  larger  open  market  than  they 
have,  in  order  to  excel  in  stability,  which  is  an 
indispensable  qualification  of  a  money-metal.  Unless 
a  new  metal  can  stand  these  tests,  it  will  not  receive 
that  individual  approval  that  will  bring  it  into 
general  circulation,  and  even  though  it  has  all  the 
essentials  of  a  superior  money-metal,  its  establish¬ 
ment  must  necessarily  be  of  slow  growth. 


Mandatory  Money  and  Free  Money  141 


Hence  the  law  of  natural  displacement  is  a  suffi¬ 
cient  bar  to  useless  monetary  innovation,  and  there 
is  no  need  for  making  a  money-metal  legal  tender ; 
if  it  has  superior  fitness,  it  will  circulate,  and  ought 
to  circulate  ;  if  it  has  not,  the  legislation  that  would 
force  it  into  circulation  can  only  act  as  an  obstruc¬ 
tion  to  the  introduction  of  better  money. 

The  movement  for  silver,  which  seems  to  be 
favored  by  a  majority  of  the  people  of  the  United 
States,  is  unquestionably  based  upon  an  honest 
conviction  that  the  efficiency  of  our  money  would 
be  enhanced  by  making  that  metal  the  standard  of 
values.  As,  however,  even  under  bi-metallism  there 
is  really  but  one  standard,  it  is  impossible  to  put 
this  theory  to  a  practical  test  except  by  expelling 
gold  from  the  circulation  ;  we  have  therefore  no 
choice  under  bi-metallic  ruling  but  to  accept  one 
metal  or  the  other,  or  repeal  all  legal-tender  legisla¬ 
tion  and  let  both  metals  circulate  independently. 
With  such  freedom  the  two  metals  would  have  an 
even  chance  of  proving,  through  individual  selec¬ 
tion,  their  monetary  qualifications,  and  there  is  not 
much  doubt  as  to  what  would  then  take  place — 
silver  would  supply  the  needs  of  trade  and  gold  the 
needs  of  commerce  ;  the  more  primitive  industrial 
localities  would  select  silver,  while  the  more  advanced 


142  The  Natural  Law  of  Money 


would  retain  gold.  Speaking  generally,  the  drift  of 
silver  would  be  towards  the  industrial  West  and 
South,  and  the  drift  of  gold  towards  the  commercial 
East.  But  whatever  the  movement  of  the  metals 
might  be,  we  may  be  quite  sure  that  each  would 
find  for  itself  the  employment  to  which  it  is  best 
adapted. 

So  long  as  bi-metallism  is  in  force,  gold  must  con¬ 
tinue  to  be  the  sole  monetary  standard  of  the  United 
States,  for  the  simple  but  sufficient  reason  that  it  is 
incompatible  with  the  genius  of  the  American 
people  to  work  with  inferior  implements,  and  that 
for  this  nation  silver  is,  of  the  two  metals,  the 
inferior  monetary  implement.  In  this  age  of  refine¬ 
ment  of  commercial  methods,  even  gold  is  found  to 
be  cumbersome,  and  every  expedient  that  banker  and 
merchant  can  devise  is  adopted  to  avoid  the  neces¬ 
sity  of  handling  it.  How  foolish  it  is  then  to  sup¬ 
pose  that  a  money  twenty-seven  times  heavier  can, 
by  legislative  enactment,  be  made  to  displace  that 
which  has  been  the  nation’s  standard  for  fifty-nine 
years  !  When  the  natural  law  of  progression  shall 
be  inverted,  when  men  shall  seek  to  increase  their 
burdens  and  to  carry  twenty-seven  pounds  to 
accomplish  a  purpose  that  one  pound  will  serve, 
such  legislation  may  be  made  effective,  but  not  till 


Mandatory  Money  and  Free  Money  143 


then.  Such  a  law  might  be  passed  and  be  made 
operative  for  a  time,  but  trade  customs  would  soon 
prove  themselves  more  powerful  than  legislative 
enactments.  It  is  only  by  studying  something  of 
the  industrial  forces  that  are  at  work  impelling  civil¬ 
ization  forward  that  we  can  be  brought  to  compre¬ 
hend  the  profounder  meanings  of  the  Silver  move¬ 
ment,  than  which  no  great  popular  uprising  has 
ever  been  more  unfortunate  in  its  leadership. 

We  believe  it  to  be  a  fair  presumption  that  before 
the  passage  of  the  Sherman  Act  in  1890,  a  majority 
of  the  people  of  the  United  States  had  accepted  the 
fundamental  doctrine  of  the  Silverite  leaders  that 
“  there  is  not  gold  enough  in  the  world  to  supply 
the  money  need,”  and  that  there  had  been  still  more 
general  acceptance  of  the  idea  that  silver,  being  a 
native  product,  should  be  made  our  monetary  stand¬ 
ard.  Why  then  has  not  this  idea  been  put  into 
practice  ?  Obviously  because  the  leaders  of  the 
movement  have  lost  the  moral  warrant  of  their 
leadership.  If  the  two  metals  had  retained  a  mar¬ 
ketable  ratio  of  sixteen  to  one,  the  experiment  of  a 
silver  monetary  standard  might  have  been  made  with 
the  very  general  consent  of  the  people  ;  but  as,  when 
the  relative  value  of  the  two  metals  changed,  the 
leaders  made  no  effort  to  prevent  injustice  to 


144  The  Natural  Law  of  Money 


individuals  through  the  change  from  the  gold  to  a 
silver  standard,  their  support  naturally  fell  away 
from  them.  In  changing  the  standard  it  was  the 
duty  of  these  leaders  to  see  that  money  issued 
at  a  gold  valuation  should  be  redeemed  at  a  gold 
valuation ;  their  claim  that  the  change  in  relative 
value  had  been  produced  by  an  advance  in  gold 
rather  than  by  a  decline  in  silver,  even  if  well- 
founded,  did  not  lessen  this  obligation,  nor  were 
they  relieved  from  it  by  their  further  claim,  incon¬ 
sistent  with  the  first,  that  free  coinage  would  restore 
silver  to  the  standard  ratio  of  sixteen  to  one  of  gold. 

Of  course  it  is  assumed  that  these  leaders  under¬ 
stood  that  the  forcible  injectment  of  silver  into  the 
currency  would  ultimately  expel  gold  from  the  cir¬ 
culation.  This  monetary  law  is  so  firmly  estab¬ 
lished,  and  is  so  generally  understood  and  accepted, 
that  it  is  incredible  they  would  seek  shelter  from 
responsibility  on  the  plea  of  ignorance  of  its  work¬ 
ings.  If,  on  the  other  hand,  their  design  was  to 
retain  both  metals  in  circulation,  as  some  at  least 
of  them  have  professed,  then  their  duty  was  to  have 
the  government  definitely  and  specifically  com¬ 
mitted  to  hold  the  two  metals  at  a  parity  by  making 
the  coins  interchangeable,  not  at  the  option  of  the 
Secretary  of  the  Treasury,  but  at  the  option  of 


Mandatory  Money  and  Free  Money  145 


the  holder.  To  arbitrarily  redeem  gold  money  in 
anything  but  gold,  is  repudiation. 

A  silver  monetary  standard  would  place  the  nation 
under  some  disadvantages  ;  by  depriving  the  higher 
departments  of  industry  of  the  more  effective  imple¬ 
ment,  the  productive  powers  of  the  whole  people 
would  to  some  extent  be  disabled  ;  but  if  the  change 
from  gold  to  silver  were  made,  as  it  might  be,  with¬ 
out  entailing  injustice  upon  individuals,  no  discredit 
■could  attach  to  the  nation.  Capital  would  not  then 
have  occasion  to  seek,  in  other  parts  of  the  world, 
the  protection  it  is  entitled  to  here  :  it  is  not  an  ob¬ 
jection  to  silver  money  that  is  frightening  capital 
away,  but  the  anticipation  that  loss  of  capital  will 
result  from  the  change  of  standard.  While  it  is  true 
that  the  kind  of  money  used  by  a  nation  indicates, 
as  its  other  industrial  implements  do,  the  stage  of 
civilization  it  has  reached,  nobody  would  hesitate  to 
trade  with  us  because  of  our  silver  money,  any  more 
than  they  would  if  our  plows  were  forked  sticks. 
Silver  is  as  definite  and  as  comprehensible  a  money 
as  gold  ;  its  cumbersomeness  and  instability  would 
be  our  burden,  and  not  that  of  those  who  traded 
with  us.  Estimated  by  the  economic  intelligence 
of  our  age,  our  movement  would  be  retrogressive ; 

but  having  shown  a  sensitive  respect  for  the  rights 
10 


146  The  Natural  Law  of  Money 


of  individuals,  that  general  sense  of  security  which 
is  indispensable  to  industrial  prosperity,  instead  of 
being  weakened  by  the  change,  could  not  fail  to  be 
strengthened  by  the  manifestation  of  a  determined 
disposition  to  be  honest  in  the  making  of  it.  Under 
such  conditions  we  should  doubtless,  a^  a  nation, 
prosper  with  a  silver  currency ;  nor  would  it  be  a 
backward  step  from  a  position  of  uncertainty  as  to 
which  metal  is  to  be  the  standard  ;  but  as  compared 
to  having  a  fixed  gold  standard,  the  adoption  of  a 
silver  standard  would  be  a  backward  step.  This 
being  the  tendency  of  the  Silver  movement  under 
its  present  leadership,  the  question  naturally  arises, 
why  should  a  rich  and  resourceful  nation  like  ours, 
at  peace  with  the  whole  world  and  foremost  in  in¬ 
dustrial  appliances,  voluntarily  lower  its  monetary 
standard  to  the  level  of  that  of  Russia  and  Mexico? 

The  argument  of  the  leaders,  that  our  monetary 
embarrassments  proceed  from  a  scarcity  of  gold, 
doubtless  represents  fairly  the  honest  conviction  of 
the  great  body  of  the  supporters  of  the  movement. 
We  fail  to  understand  this  movement  if  we  suppose 
that  it  proceeds  merely  from  a  desire  to  protect  the 
silver-mining  industry ;  or  that  it  has  for  its  object 
the  relief,  by  a  dishonest  settlement,  of  the  farmer’s 
mortgage  indebtedness ;  nor  do  we  realize  the 


Mandatory  Money  and  Free  Money.  147 


character  of  the  movement  if  we  imagine  it  settled  by 
the  repeal  of  the  purchase  clause  of  the  Sherman  Act. 
That  a  great  popular  agitation  should  have  endured 
for  fifteen  years,  gathering  supporters  from  the  two 
regularly  organized  national  parties,  and  threatening 
the  disruption  of  both,  proves  it  the  possessor  of  at 
least  two  of  the  elements  of  political  vitality  that 
give  birth  to  parties : — a  grievance  to  redress  that  is 
national  in  character,  and  the  coherent  principle  of 
honesty.  Without  these  two  elements  a  movement 
of  such  magnitude  would  be  impossible  ;  it  doubt¬ 
less  has  also  some  elements  of  sordid  selfishness — 
what  popular  movement  has  not  ?  It  may  even  have 
individuals  in  the  ranks  of  leadership  who,  for  per¬ 
sonal  gain,  would  not  hesitate  to  betray  their  country 
into  the  commission  of  a  crime ;  but  that  the  rank 
and  file  of  the  movement,  including  a  majority  of 
the  leaders,  are  working  for  what  they  believe  are 
the  best  interests  of  the  nation,  it  is  no  concession  to 
admit,  for  it  is  a  logical  sequence. 

Acknowledging  then  the  honest  intent  of  the  Sil¬ 
ver  movement,  we  shall  be  better  able  to  appreciate 
its  earnestness  and  force  if  we  will  look  at  the  sub¬ 
ject  from  the  Silverites*  standpoint,  though  we  can¬ 
not  agree  with  them  that  there  is  not  gold  enough  in 
the  world  for  monetary  requirements,  and  that,  in 


148  The  Natural  Law  of  Money 


consequence  of  the  supposed  scarcity,  a  gold  stand¬ 
ard  gives  to  the  East  a  monopolistic  power  over  the 
West  and  South  ;  nor,  that  it  is  because  of  this  sup¬ 
posed  advantage  that  the  moneyed  interest  of  the 
East  is  contesting  for  the  gold  standard.  But  to 
reject  the  views  of  the  Silver  party,  does  not  prevent 
our  perceiving  that  it  has  more  sincerity  in  its  com¬ 
position  than  either  of  the  two  national  parties  ; 
while  it  has  pressed  its  claims  with  persistent 
courage,  both  the  Democratic  and  the  Republican 
party  have  evaded  the  issue  until  the  country  has 
been  brought  into  such  distress  that  compromise  or 
postponement  of  action  is  no  longer  possible. 

It  must  be  acknowledged  that  the  South  and  West 
have  been  overtaxed  by  monopolistic  money ;  but 
this  chiefly  because  it  is  government  money.  It  is 
undoubtedly  a  disadvantage  to  be  forced  to  use  gold 
in  a  locality  where  silver  is  more  adaptable,  and  vice 
versa  ;  yet  no  special  advantage  can  accrue  to  either 
locality  from  compelling  the  other  to  adopt  its 
money.  As  all  sections  of  our  country  are  interde¬ 
pendent,  the  prosperity  of  one  contributes  in  some 
measure  to  the  prosperity  of  all ;  hence  money  found 
to  be  most  effective  in  a  given  locality  is  the  money 
that  should  be  used  there,  and  it  is  also  the  money 


Mandatory  Money  and  Free  Money  149 


that  will  be  used  if  not  arbitrarily  interfered  with. 
With  freedom  there  can  be  no  monopolistic  money. 

None  of  the  Silverite  leaders  has  attempted  to 
state  specifically  in  what  way  the  country  would  be 
benefited  by  the  change  advocated  ;  in  undertaking 
so  serious  a  work  as  the  adoption  of  a  new  monetary 
standard,  these  leaders  should  substantiate  their 
claim  that  gold  is  monopolistic  money  and  that 
silver  is  not,  and  should  also  clearly  define  what  other 
monetary  advantages  they  believe  to  belong  to 
silver.  If  instead  of  a  change  in  the  standard  of 
values  they  had  proposed  a  change  in  the  standard 
of  lineal  measurement, — as  for  example  to  shorten 
the  yard-stick  to  twenty  inches, — they  would  have 
felt  under  obligation  to  state  their  reasons  for  want¬ 
ing  the  change,  and  to  state  them  in  terms  that 
ordinarily  intelligent  people  could  understand.  They 
are  doubtless  sensible  of  the  fact  that  before  they 
could  succeed  in  changing  the  yard  measure,  they 
would  have  to  show  that  a  yard-stick  of  thirty-six 
inches  is  not  adapted  to  the  arm’s  reach,  and  that 
one  of  twenty  inches  would  facilitate  the  measure¬ 
ment  of  cloths,  and  thus  save  time  and  labor.  Why 
then  have  they  not  clearly  demonstrated  how  time 
and  labor  could  be  economized  and  productiveness 


150  The  Natural  Law  of  Money 


increased  by  a  change  in  the  monetary  standard, — 
for  that  is  the  essence  of  the  whole  question  ?  If 
they  had  attempted  to  show  this,  they  would  have 
found  that  one  is  no  more  susceptible  of  demonstra¬ 
tion  than  the  other,  yet  both  questions  are  equally 
susceptible  of  practical,  common-sense  treatment. 
If  gold  money  is  monopolistic,  there  should  be  no 
trouble  in  showing  specifically  why  it  is  so,  for  money 
of  any  kind  is  not  a  mystery  ;  it  is  as  much  a  tangible, 
every-day,  working  implement  as  the  yard-stick. 

The  truth  is  that  in  the  popular  discussion  of  the 
Silver  question,  money  and  capital  have  usually 
been  treated  as  one  and  the  same  thing,  and  the 
mystical  idea  of  money  has  so  obscured  the  general 
perception  as  to  prevent  the  application  of  the  com¬ 
monest  rules  of  logic  to  the  subject.  Upon  this 
idea  our  whole  monetary  legislation  is  based,  and 
from  it  has  sprung  such  a  crop  of  complexities  and 
inconsistencies  that  it  is  no  wonder  people  who  have 
not  time  to  make  a  special  study  of  the  subject  can¬ 
not  realize  that  the  natural  law  of  money  is  very 
simple.  But  though  our  people  may  be  behind  in 
monetary  science,  they  are  quick  to  learn,  and  now 
that  popular  interest  is  thoroughly  awakened  in  the 
subject,  we  may  look  with  confidence  for  a  full 
solution  of  the  problem.  Justice  requires  that  we 


Mandatory  Money  and  Free  Money  151 


should  not  forget  that  a  whole  generation  of  educa¬ 
tion  on  this  subject  was  lost  to  the  people  of  the 
United  States  while  slavery,  and  the  adjustments 
growing  out  of  its  abolishment,  occupied  the  forum 
of  public  debate  to  the  exclusion  of  all  other  ques¬ 
tions.  It  was  during  this  period  of  strife  and  pressing 
need  of  capital  that  our  medium  of  exchange  passed 
from  its  natural  channels  of  development  into  the 
control  of  the  national  government,  where  it  has 
ever  since  been  held  in  political  bondage. 


* 


CHAPTER  VIII. 

THE  HOARDING  PANIC  OF  JULY,  1 893. 

PROBABLY  most  persons  who  were  in  the 
United  States  in  the  summer  of  1893  were 
conscious  that  a  great  commercial  crisis  had  arrived, 
but  many  of  them  may  not  have  realized  that  this 
crisis  included  two  distinct  panics  referrible  to  quite 
different  causes.  The  first  of  these  occurred  in  May, 
the  second  in  July.  The  May  panic  was  the  culmi¬ 
nation  of  a  long-continued  drain  upon  the  capital  of 
the  country  by  foreign  investors  who  distrusted  our 
ability,  under  existing  legislation,  to  maintain  the 
gold  standard ;  there  was  no  scarcity  of  money  at 
the  time.  Gold  had  already  disappeared  from 
general  circulation,  and  was  paid  out  only  at  the 
United  States  Treasury;  but,  notwithstanding  the 
withdrawal  of  gold,  the  money  in  circulation,  had  it 
possessed  the  requisite  elasticity,  would  have  been 
sufficient  in  quantity  to  effect  all  exchanges  in  all 


152 


The  Hoarding  Panic  of  July,  1893  153 


parts  of  the  country.  The  July  panic  was  quite  a 
different  thing;  it  was  occasioned  by  the  hoarding 
of  paper-money,  which  reduced  the  quantity  in  circu¬ 
lation  far  below  the  needs  of  the  people.  It  is  to 
this  second  panic  that  we  wish  to  call  special  atten¬ 
tion,  because  it  furnishes,  on  the  one  hand,  a  prac¬ 
tical  illustration  of  the  inability  of  a  government  to 
perform  properly  those  functions  of  banking  which 
our  government  has  assumed  in  undertaking  to  sup¬ 
ply  the  medium  of  exchange,  and  because,  on  the 
other  hand,  it  illustrates  the  entire  ability  of  the 
people  to  properly  provide  such  a  medium  for  them¬ 
selves. 

The  withdrawal  of  capital  from  the  country  and 
of  gold  from  the  circulation,  which  preceded  the 
May  panic,  were  the  acts  of  individuals  who  foresaw 
the  disastrous  consequences  that  would  follow  a  sus¬ 
pension  of  gold  payment ;  but  that  the  hoarding  of 
paper-money  which  brought  on  the  panic  of  July 
was  the  work  of  individuals  who  were  ignorant  of 
monetary  principles,  is  proved  by  the  fact  that  the 
money  they  hoarded,  like  all  the  money  in  general 
circulation  at  the  time,  was  liable  to  decline  to  the 
silver  basis.  Greenbacks  are  payable  in  coin,  and 
coin  means  either  silver  or  gold  ;  silver  certificates 
are  payable  in  silver  only  ;  Treasury  notes  are  pay- 


154  The  Natural  Law  of  Money 


able  in  either  silver  or  gold  ;  and  national-bank  notes 
may  be  redeemed  in  either  greenbacks  or  Treasury 
notes.  These  four  kinds  of  paper-money,  together 
with  the  silver  coin  in  current  use,  constituted  the 
entire  circulating  medium  when  the  hoarding  began, 
and  the  Secretary  of  the  Treasury  could  at  his  dis¬ 
cretion  have  lawfully  reduced  it  all  to  a  silver  basis. 

This  entire  volume  of  currency  was  substantially 
without  elasticity ;  aside  from  the  four  and  a  half 
million  dollars’  monthly  output  required  by  the 
Sherman  Act,  the  paper-money  could  only  be 
legally  expanded  by  the  issuance  of  notes,  to  the 
full  amount  of  the  authorized  limit,  by  such  national 
banks  as  had  not  already  their  full  quota  in  circula¬ 
tion  ;  but  to  so  expand  it  involved  a  preliminary 
outlay  of  capital  by  these  banks  in  the  purchase  of 
government  bonds,  as  well  as  a  delay  of  from 
twenty  to  thirty  days  before  they  could  get  their 
notes  from  the  government ;  indeed,  many  of  the 
applicants  for  notes  did  not  receive  them  until  after 
the  need  for  them  had  passed.  The  only  other 
available  resource  left  open  to  the  people  in  this 
extreme  emergency  was  the  importation  of  gold ; 
to  make  any  paper-money  was  a  penal  offence. 

It  should  be  borne  in  mind  that  there  is,  under 
existing  laws,  a  tax  of  ten  per  cent,  upon  every 


The  Hoarding  Panic  of  July,  1893  155 


form  of  paper,  excepting  government  notes  and 
national-bank  notes,  that  may  be  used  as  a  common 
medium  of  exchange  in  any  part  of  the  country. 
This  tax  is  not  levied  for  revenue,  but  is  intended 
to  suppress  the  issuance  of  any  and  all  paper-money 
not  directly  authorized  by  Congress  ;  it  is,  there¬ 
fore,  in  no  proper  sense  a  tax, — it  is  a  fine. 

In  attributing  the  first  panic  to  the  withdrawal  of 
capital  from  the  country,  and  the  second  to  the  with¬ 
drawal  of  money  from  the  circulation,  it  is  under¬ 
stood  that  these  withdrawals  were  but  the  logical 
sequences  of  that  monetary  legislation  which  was 
the  primary  and  sole  cause  of  both  panics.  The 
natural  conditions  were  all  favorable  to  industrial 
growth  and  prosperity. 

The  withdrawal  of  capital  from  the  country  had 
lowered  prices,  it  had  raised  the  normal  interest  rate, 
it  had  checked  new  industrial  undertakings,  it  had, 
in  short,  lowered  the  productive  powers  of  the  nation, 
thus  compelling  individual  economy  and  lessening 
the  consumption  of  commodities  :  but  although,  in 
consequence  of  the  loss  of  capital,  the  industry  of 
the  nation  could  move  only  on  a  lower  plane  of 
activity,  the  industrial  organism  itself  was  still  in¬ 
tact.  The  hoarding  of  the  currency,  on  the  contrary, 
threatened  a  disruption  of  this  industrial  organism, 


156  The  Natural  Law  of  Money 


because  any  civilized  community  deprived  of  its 
medium  of  exchange,  is  thereby  carried  back  to 
primitive  barter.  It  is  no  more  possible  for  a  people 
to  maintain  their  industrial  activities  without  a 
medium  of  exchange,  than  it  is  for  a  farmer  without 
farming  implements  to  till  the  soil  and  produce 
crops. 

The  hoarding  of  paper-money  doubtless  began 
some  time  before  its  disturbing  effects  were  seriously 
felt.  Just  before  the  July  panic,  it  was  noted  by 
New  York  city  bankers  that  the  volume  of  current 
money  in  that  city  was  shrinking  at  the  rate  of  a 
million  dollars  a  day,  and  this  startling  fact  made  it 
necessary  for  them  to  adopt  measures  to  ward  off  the 
danger  that  threatened  them  ;  for  although  a  bank 
may  be  ever  so  solvent,  it  must,  under  a  strict  ruling 
of  our  national  banking  laws,  meet  its  demand  obli¬ 
gations  in  lawful  money,  or  close  its  doors.  Conse¬ 
quently,  although  this  hoarding  originated  with 
persons  who  were  ignorant  of  monetary  principles, 
it  soon  became  necessary,  as  a  matter  of  self-preserva¬ 
tion,  that  banks  and  persons  who  perfectly  under¬ 
stood  these  principles,  should  refrain,  as  far  as 
possible,  from  paying  out  currency.  The  savings 
banks  were  not  only  admonished  to  increase  their 
reserve  money,  but  also  to  keep  it  in  their  own 


The  Hoarding  Panic  of  July,  1893  157 


vaults,  thus  withdrawing  from  current  use  the  money 
usually  kept  by  them  in  commercial  banks. 

The  strain  upon  the  industrial  activities  of  the 
nation  caused  by  the  hoarding,  reached  its  greatest 
tension  in  the  third  week  of  August.  Congress  had 
then  been  sitting  in  extra  session  for  about  two 
weeks,  yet,  notwithstanding  the  urgent  appeals  from 
all  parts  of  the  country,  that  body  had  done  nothing 
to  relieve  the  nation  from  its  distress.  The  repeal, 
on  the  first  of  November,  of  the  silver-purchase 
clause  of  the  Sherman  Act,  served  to  allay  the  pub¬ 
lic  fear  of  gold  suspension,  and  doubtless  somewhat 
checked  the  drain  of  capital  from  the  country ;  but 
before  this  repeal  was  enacted,  and  while  it  was  still 
the  general  belief  that  the  clause  would  not  be  re¬ 
pealed,  industries  that  had  suspended  in  consequence 
of  the  hoarding,  resumed  operations  solely  through 
individual  action,  and  without  the  least  aid  from 
Congress. 

It  may  be  doubted  whether  any  people  were  ever 
placed  in  a  more  trying  and  critical  position  by  false 
monetary  legislation  than  were  the  people  of  the 
United  States  during  the  months  of  July  and  August, 
1893,  and  no  person  at  all  conversant  with  monetary 
principles,  noting  what  then  took  place,  can  fail  to 
be  impressed  by  the  promptitude  with  which  the 


158  The  Natural  Law  of  Money 


American  people  met  the  crisis  and  overcame  it. 
Without  any  warning  or  previous  indication,  the 
mania  for  hoarding  had  broken  out  and  had  spread 
like  an  epidemic  all  over  the  country.  Mills  and 
factories  with  ample  capital  and  in  active  operation, 
for  lack  of  current  money  had  to  shut  down  and 
leave  their  work-people  without  employment ;  many 
perfectly  solvent  banks  had  to  close  their  doors ; 
railroad  companies  could  not  obtain  the  necessary 
money  to  pay  the  wages  of  their  workmen. 

Within  four  weeks  after  the  July  panic,  the  want 
of  a  medium  of  exchange  had  reduced  the  productive 
activities  of  the  nation  about  thirty  per  cent.,  This 
was  made  evident  by  a  thirty  per  cent,  reduction  in 
the  sum-total  of  bank  clearings  in  those  cities  which 
have  the  clearing-house  system.  There  are  eighty 
such  cities  in  the  United  States,  and  the  sum-total  of 
the  daily  business  transacted  through  the  banks 
of  each  city  is  each  day  brought  into  one  set  of 
books,  and  the  rise  or  fall  of  this  sum-total,  in  all  the 
cities,  indicates  from  day  to  day,  with  measurable  ac¬ 
curacy,  the  rise  or  decline  of  industrial  activity  in  the 
nation  at  large. 

The  country  was  only  saved  from  a  much  more 
serious  crash  by  the  action  of  the  people  who 
promptly  took  into  their  own  hands  the  supplying 


The  Hoarding  Panic  of  July,  1893  159 


of  a  medium  of  exchange,  ignoring  the  laws  that 
make  such  action  a  penal  offence.  Before  the  hoarded 
money  had  returned  to  the  circulation,  mills  and  fac¬ 
tories  that  had  shut  down,  started  up  again  with 
a  money  of  their  own  making,  which  their  employes 
were  satisfied  to  take,  and  which  the  local  store¬ 
keepers  freely  received  at  its  full  face  value  in  ex¬ 
change  for  goods.  To  relieve  their  need  of  currency, 
many  banks  imported  gold  at  an  extra  cost ;  forty 
million  dollars  were  thus  imported  in  August.  The 
bank  clearing-houses  in  the  different  cities  issued 
certificates  which  were  used  among  themselves  in 
lieu  of  legal  money  in  making  their  exchanges.  About 
forty  million  dollars,  in  certificates  of  five  thousand 
dollars  each,  were  issued  by  the  New  York  Clearing- 
House  ;  while  in  some  other  cities  certificates  for  as 
small  a  sum  as  ten  dollars  were  issued,  and  these 
passed  into  the  current  circulation  of  the  localities 
where  they  were  issued. 

The  individual  bank-check  was,  however,  the  chief 
instrumentality  of  relief  in  this  exigency ;  it  became 
for  a  time  the  common  medium  of  exchange,  as  was 
shown  by  the  fact  that  legal  money  was  bought  and 
sold  as  any  commodity  might  be.  As  much  as  four 
and  a  half  per  cent,  premium  was  paid  in  check- 
money  for  legal  money.  In  these  transactions,  it 


160  The  Natural  Law  of  Money 


was  noted  that  the  government  paper-money  some¬ 
times  brought  half  per  cent,  more  than  gold  coin, 
and  this  circumstance  was  interpreted  by  some  as 
evidence  that  silver  money  was  preferred  to  gold, 
but  it  had  no  significance  beyond  the  fact  that  the 
silver  money  was  paper  and  the  gold  was  coin.  The 
paper-money  commanded  the  higher  premium  only 
because  it  is  more  convenient  to  handle  than  coin. 
The  question  of  quality  did  not  enter  into  these 
transactions.  What  the  buyers  wanted  was  any¬ 
thing  that  could  legally  perform  the  function  of  a 
medium  of  exchange,  and  they  were  obliged  to  pay 
a  premium  to  obtain  it  because  the  government,  in 
its  capacity  of  banker-in-chief,  had  failed  to  supply 
this  medium. 

The  hoarded  currency  began  to  return  to  the  cir¬ 
culation  in  September,  and  in  October  the  banks 
were  amply  supplied  with  legal  money  and  were 
paying  it  out  freely.  We  cannot  know  to  what 
extent  the  extemporized  money — such  as  bank- 
checks,  clearing-house  certificates,  pay-roll  checks, 
etc. — supplied  the  deficiency  occasioned  by  the 
hoarding  of  the  legal  medium  of  exchange,  but  we 
do  know  that  by  the  second  week  of  October  the 
industry  of  the  nation  was  no  longer  restricted  by 
the  want  of  such  a  medium.  The  issuance  of  cer- 


The  Hoarding  Panic  of  July,  1893  161 


tificates  by  the  New  York  Clearing-House,  which 
began  in  the  third  week  of  June,  had  reached  the 
sum  of  $38,280,000  on  August  29th,  and  this  was  the 
largest  sum  outstanding  at  any  one  time,  although 
there  had  been  a  total  issue  of  $41,490,000.  The 
cancellation  of  these  certificates  began  in  the  second 
week  of  September,  and  the  last  certificate  was  can¬ 
celled  on  the  first  day  of  November.  The  date  of 
issuance  of  these  certificates  not  only  enables  us  to 
fix  definitely  the  duration  of  the  hoarding  period, 
but  also  to  fix  the  time  at  which  the  strain  was 
greatest ;  this  was  in  August,  as  is  confirmed  by  the 
fact  that  the  premium  on  legal  money  began  to  be 
paid  in  the  second  week  of  August  and  ceased  with 
the  first  week  of  September. 

Under  a  monetary  system  that  would  not  interfere 
with  the  freedom  of  metallic  money  or  with  the 
freedom  of  banks  in  the  exercise  of  their  legitimate 
function  of  issuing  paper-money,  and  with  laws  that 
would  recognize  the  vital  importance  of  personal 
supervision  and  individual  responsibility,  this  hoard¬ 
ing  panic  would  not  have  been  possible;  but  under 
our  present  system  of  government  money,  we  are 
constantly  exposed  to  similar  experiences.  Nor 
would  this  risk  be  lessened  by  a  change  of  standard. 
Whether  silver  or  gold,  or  whether  both  these  metals, 


1 62  The  Natural  Law  of  Money 


formed  the  standard,  government  paper-money  would 
still  have  all  its  present  defects ;  it  would  still  have  a 
tendency  to  desert  the  agricultural  districts  for  the 
great  cities,  where  it  would  stimulate  unwholesome 
speculation ;  it  would  still  be  monopolistic,  in  the 
sense  that  it  would  confer  upon  wealth  the  power  to 

i 

create  a  monopoly  in  money.  A  few  rich  men,  by 
withdrawing  money  from  the  circulation  and  locking 
it  up,  can  break  prices  and  embarrass  legitimate  trade, 
thus  producing  conditions  in  a  given  locality  similar 
to  those  produced  by  the  hoarder  in  the  nation  at 
large. 

During  the  greenback  period,  this  method  of 
manipulating  the  New  York  stock  market  was  so 
commonly  practised  that  it  came  to  be  regarded 
almost  as  a  legitimate  occupation.  A  clique  of 
moneyed  men  would  sell  a  long  line  of  securities, 
then  put  away  the  greenbacks  received  for  them, 
and  having  by  this  means  broken  the  market,  they 
would  buy  back  their  securities  at  the  reduced  rates, 
— a  transaction  made  possible  by  the  lack  of  elas¬ 
ticity  inherent  in  government  paper-money. 

Money  is  so  important  a  factor  in  the  creation  of 
wealth  that  until  we  can  have  a  paper  currency  with 
sufficient  elasticity,  not  only  to  respond  promptly  to 
legitimate  demands  in  every  section  of  the  country, 


The  Hoarding  Panic  of  July,  1893  163 


but  to  return  to  its  issuers  for  redemption  when  that 
demand  shall  cease,  we  can  neither  know  what  the 
productive  powers  of  the  nation  are,  nor  can  they 
be  developed  to  their  fullest  extent ;  but  we  shall 
never  have  such  a  currency  so  long  as  the  national 
government  continues  to  exercise  the  function  it 
has  assumed  of  supplying  the  common  medium  of 
exchange. 


I 


INDEX. 


A 

Act  of  Resumption,  124 
Adams’s,  John,  opinion  of  paper- 
money,  86 

B 

Bank  of  England,  America’s 
model,  93 

Bankers,  the  first,  64  ;  duties  of, 
67-69  ;  services  of,  70 
Banking,  development  of,  62 
Bank-notes,  bond  security  for,  66  ; 

first  issue  of,  92  ;  Canada’s,  101 
Bank  of  North  America,  92 
Barter  and  trade,  3 
Bills  of  credit  first  issued  in  Massa¬ 
chusetts,  81 

Bills  of  exchange,  77,  118 
Bimetallic  ratio,  53 
Bi-metallism,  22,  32,  37,  47,  49 
Bland  Act,  48 

Bullion  market,  the  world’s,  38 
C 

Canada,  bank-note  issue  of,  99 ; 
metallic  basis,  99  ;  securities  in, 

165 


for  safe  banking,  102  ;  metallic 
basis  of,  contrasted  with  that  of 
the  United  States,  105  ;  banking 
facilities  of,  in  regard  to  agri¬ 
cultural  industries  compared 
with  those  of  the  United  States, 
107,  112 

Canadian  banks,  why  our  western 
farmers  borrow  money  from, 

1 14  ;  illustration  of,  115 

Capital,  not  limited  by  nationality, 

11 5  ;  contrasted  with  money, 
1 16,  1 18  ;  insufficiency  of,  in 
United  States,  1 19  ;  volume  of, 
as  affecting  the  rate  of  interest, 
120  ;  beneficial  effects  of  the 
introduction  of  foreign,  124  ; 
destructive  results  of  the  with¬ 
drawal  of,  155 

Change  of  metallic  standard,  by 
England,  32,  40  ;  effects  of  a, 
52,  54,  126 

Clearing-house  system,  the,  69  ; 
returns  of,  as  a  gauge  of  busi¬ 
ness  activity,  158  ;  certificates, 
161 

Clipping  of  coin,  19,  25-30 


Index 


1 66 


Coinage,  debasement  of  the,  19  ; 
of  metals,  15,  18  ;  mutilation  of 
the,  24 

Coined  money,  final  test  of,  9 
Colonists  of  Virginia,  7,  8 
Commodities  as  money,  2 
Confidence  as  a  factor,  79 
Congress,  the  duty  of,  50 
Continental  paper-money,  78 
Credit  as  a  factor,  60  ;  beginning 
of,  61-63 

D 

Demonetization  of  silver,  40,  89 
Displacement,  law  of  natural,  23, 
59 ;  two  examples  of  artificial, 
44,  47 

Dollar,  silver  and  gold,  20,  47 

% 

E 

Elasticity,  14 ;  meaning  of  the 
term,  73 

Emerson,  R.  W.,  16 
F 

Farmers’  Alliance,  8 
France’s  bi-metallism,  41 
P'ree-metallism,  136,  139,  141 
Full-weight  and  short-weight  coin, 
29 

G 

Gold  and  silver  as  money-metals, 
comparison  of,  11,  12,  59 
Goldsmiths  of  London,  64 
Gold  standard,  maintenance  of 
the,  50 


Government,  monetary  functions 
of,  36 

Government  money  monopolistic, 
162 

Greenbacks,  definite  character  of, 
127  ;  issuance  of,  a  fiscal  expe¬ 
dient,  128 

Gresham  law,  the,  23,  27,  136 
Guinea,  the,  31 

H 

Hamilton’s  opinion  of  banking,  95 
Hoarding  panic,  the,  153;  effect 
of,  155 

I 

Immediate  redemption,  principle 
of,  92 

Improvised  money,  159 
Indian  money,  37 
Individual,  influence  of  the,  on 
money,  37,  71,  121,  153 
Interest,  beginning  of,  61  ;  normal 
rate  of,  119,  120  ;  as  affected  by 
the  volume  of  capital  and  by  the 
volume  of  money,  121 
Intrinsic  value,  14,  33 

J 

Jefferson’s  opinion  of  banking,  95 
Jews  as  money-dealers,  28 
Joint-stock  banking,  beginning  of, 
94 

K 

King’s  money,  17 


Index 


167 


L 

Latin  Union,  the,  41 
Law  of  displacement,  48,  127, 
141 

Legal-tender  money,  26,  34,  77  ; 
of  Canada,  101  ;  paper-money 
as,  135 

Legislation,  effects  of  false,  6 ; 
relation  of,  to  the  interest  rate, 
1 19;  in  regard  to  silver,  126; 
impossibility  of  introducing  a 
new  money-metal  by,  140 
Limit  of  the  output  of  metallic 
money,  89 
Locke,  John,  19 

M 

Macaulay  on  the  clipping  and 
sweating  of  coin,  19,  30 
Mandatory  money,  20,  23,  32,  129 
Medium  of  exchange,  4,  160 
Metallic  money,  9  ;  requisites  of, 
13,  15  ;  indispensableness  of,  71 
Miners  of  California,  15 
Monetary  standard,  effects  of  a 
change  of,  52,  57,  145 
Money,  natural  law  of,  1  ;  de¬ 
velopment  and  functions  of,  2-5  ; 
as  a  measure  of  value,  6  ;  In¬ 
dian,  7  ;  tobacco  as,  7  ;  of 
China,  10 ;  of  Rome,  10,  16 ; 
mutilation  of,  24,  30  ;  amount 
of,  in  the  colonies,  83  ;  monopo¬ 
listic,  148,  162  ;  improvised,  159 
Mono-metallism,  33,  49,  139 


N 

National  bank-notes,  retirement 
of,  46 

Natural  law  of  money,  what  is 
meant  by  the,  1 

Newton,  Sir  Isaac,  19 

P 

Paine’s,  Thomas,  opinion  of  paper- 
money,  87  ;  of  legal-tender  laws, 
135 

Paper-money,  characteristics  of ,  38, 
40 ;  beginning  of,  63-65  ;  effi¬ 
cient,  65  ;  elasticity  of,  73  ; 
reason  of  the  efficiency  of,  74  ; 
government,  75  ;  Continental, 
78  ;  different  kinds  of,  80  ;  fail¬ 
ure  of  Continental,  82  ;  laws 
regulating,  in  the  colonies,  84  ; 
similarity  of  colonial  paper- 
money  movement  to  our  silver 
movement,  86  ;  constitutionality 
of  legal-tender,  1 30-1 33  ;  four 
kinds  of,  153  ;  tax  on,  154 

Per  capita  plan,  45  ;  statisticians, 
104 

Profit  as  an  incentive  to  industry,  4 

Punishment  for  clipping  coin,  27 

R 

Railway  mileage,  124 

Repudiation,  one  form  of,  145 

Revision  of  our  monetary  system 
necessary,  51 


i68 


Index 


s 

Savings  banks  deposits,  55  ;  effect 
of  the  hoarding  on,  156 

Sherman  Act,  the,  45,  47,  49,  143, 
147 

Short-weight  and  full-weight  coin, 
34 

Silver,  comparison  of  gold  and 
silver  as  money-metals,  11,  20; 
the  choice  of  backward  nations, 
89  ;  demonetization  of,  138  ; 
movement,  honest  intent  of,  140, 
147 

Slavery  agitation,  the,  a  hindrance 
to  economic  education,  150 

Stability  an  indispensable  quality 
of  metallic  money,  14 

State  bank  money,  improvement 
in,  98 

Sweating  of  coin,  19,  25 


Tax,  the,  on  paper-money,  154 
Tobacco  used  as  money,  7 
Token-money,  10 
Trade  customs  more  powerful  than 
legislative  enactments,  143 
True  money,  52 

U 

United  States,  bank,  95  ;  record 
for  monetary  integrity,  126 
Universal  money,  91 

V 

Values,  no  fixed  measure  of,  7 
Virginia,  colonists  of,  7 

W 

Wampum,  the  Indian  money,  7 
Weighing  money,  16 
Wood’s  patent,  Wm.,  84 


Date  Due 


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